THE  LEGAL  TENDER 
PROBLEM 


By  PERCY  KINNAIRD 


UNIVERSITY  OF  CALIFORN 
AT   LOS  ANGELES 


The  LEGAL  TENDER 
PROBLEM 


By  Percy  Kinnaird 

Of  the  Nashville  Bar 


CHICAGO 

AINSWORTH    &   COMPANY 
1904 


Copyright,  1904 
By  PERCY   KINNAIRD 


PREFACE 

The  author  desires  to  state  that  he  has  relied  upon  the 
following  Government  publications  in  the  preparation  of 
his  work ;  viz.,  the  Messages  and  Papers  of  the  Presidents ; 
the  Report  of  the  Silver  Commission  of  1876;  the  Reports 
of  the  International  Monetary  Conferences  of  1867  and 
1878,  and  notes  by  Mr.  Dana  Horton ;  the  Reports  of  the 
International  Ivlonetary  Conferences  of  1881  and  1892;  the 
Madison  Papers ;  the  Laws  relating  to  Loans,,  Currency, 
Banking,  and  Coinage,  1886;  the  History  of  the  Currency 
of  the  Country,  and  the  reports  of  the  Decisions  of  the  Su^ 
preme   Court  of  the  United   States. 

For  such  matter  in  his  discussion  of  the  Dartmouth 
College  case  as  is  not  to  be  found  in  the  reports,  he  is  in- 
debted to  the  pamphlet  of  Judge  Otis,  of  the  Chicago  Bar. 

He  desires  to  acknowledge  his  indebtedness  to  Stephen 
J.  CoWell's  "Ways  and  IMeans  of  Payment"  for  his  obser- 
vations upon  the  Bank  of  Venice  and  the  Money  of  Account, 
and  to  "  Our  Money  Wars  "  for  its  many  suggestive  facts. 


;i8S033 


"  5     !    «'  ' 


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'  -<  I   r 


CONTENTS 

PAGE 

Introduction   7 

Financial  and  Economic  Errors 31 

The  Bank  of  Venice 39 

Colonial   Finance    49 

The  War  for  Independence 61 

The  Bank  of  North  America 74 

The  Four  Years'  Struggle 78 

Constitutional  Convention   91 

Statement  of  the  Debt 99 

The  First  Bank  of  the  United  States 104 

"Money  of  Account" 113 

State  Banks   130 

The  War  of  1812  and  the  Treasury  Notes 137 

3.  The  Origin  of  the  Factional  Parties 144 

The   National-Bank  Faction 147 

The  Second  Bank  of  the  United  States 155 

The  Fight  Against  the  Treasury  Notes  Continued  160 

^The  War  of  the  Banks 165 

^Dartmouth  College  vs.  Woodaro 170 

McCullough  vs.  State  of  Maryland 187 

,,j!i^~^EPbRT  OF  W.  H.  Crawford  .^ 209 

A  Change  in  Finance 228 

■-Missouri  Bills  of  Credit .:. 240 

The  Death  of  the  Second   Bank  of  the  United 

States 246 

5 


6  ConteJits 

PAGE 

The  Change  from  15  to  i  to  16  to  i 248 

President  Jackson's  Farewell  Address 254 

President  Van  Buren's  Administration 256 

— The  Supreme  Court   Saves  the  State  Banks.'.  ..  261 

^^The  First  Independent  Treasury 266 

The  Propertyj:Ri.ghts  Faction  in  Control 268 

The  Warfare  of  the  Bank  of  the  United  States 

Against  President  Tyler 270 

Forced  to  Issue  Treasury  Notes  . .  K^. 274 

President  Polk's  Administration 279 

From  a  Republic  to  an  Empire 290 

Administrations  of  Taylor  and  Fillmore 295 

Lincoln's  Financial  Method. 305 

The  Conspiracy  of  the  Bankers 313 

The  Negro  in  Finance 319 

>he  Political  Duty  of  the  Negro 331 

" Index   337 


INTRODUCTION 

The  economic,  social,  and  political  life  of  man  is  deter- 
mined by  the  method  of  procedure  adopted  by  the  Govern- 
ment for  the  production  of  commodities,  and  by  the  method 
of  procedure  adopted  for  the  distribution  or  dispersal  of 
the  surplus  commodities  among  the  people. 

The  method  of  procedure  for  the  production  of  com- 
modities is  very  easily  arranged,  and  the  arrangement  is 
simplified  by  allowing  every  one  to  choose  any  profession 
or  follow  any  pursuit  that  his  taste,  inclination,  and  means 
may  prompt. 

This  liberty  of  action  may  be  termed  Individualism, 
Industrial  Freedom,  or  Liberalism,  and  is  the  generally 
accepted  method  in  all  civilized  countries.  While  theoret- 
ically this  is  true,  it  is  evident  that  equality  of  right  and 
opportunity  is  not  secured  to  the  individual  in  practise ;  for 
under  the  governmental  and  economic  policies  in  operation, 
all  opportunity  to  make  a  profit,  if  not  a  living,  in  many 
fields  of  production  has  disappeared.  Not  only  has  equality 
of  right  and  opportunity  disappeared  in  many  fields  of 
production,  but  it  is  becoming  evident  that  it  will,  in  the 
course  of  time,  under  the  trend  of  present  practises,  dis- 
appear in  all. 

The  imminence  of  this  danger  has  become  alarming,  and 
the  doctrinaires  have  for  years  been  calling  attention  to  the 
results  of  the  cause,  and  are  endeavoring  to  show  how  its 
final  termination  —  the  serfdom  of  the  people  —  may  be 
warded  oflF,  without  being  able  to  point  out  the  true  cause. 

The  cause  which  operates  to  withhold  equality  of  right 
and  opportunity  in  practise  from  the  many,  in  both  the  crea- 

7 


^  Introduction 

tion  and  exchange  of  products,  notwithstanding  they  may 
have  said  equahty  |in  theory,  may  be  found  in  the  method 
of  procedure  adopted  for  the  distribution  or  exchange  of 
products.  This  cause  has  not  been,  and  it  seems  can  not 
be,  ascertained  by  the  economists ;  and  in  their  inability  to  do 
so  they  are  content,  as  one  class,  to  accept  the  present  method 
and  tinker  with  it,  or,  as  another  class,  to  take  advantage 
of  its  abuses  and  advocate  Socialism,  or  Government  owner- 
ship, as  the  logical  sequence. 

The  Socialists  have  long  since  disparaged  their  intellec- 
tual capacity  in  the  cessation  of  their  efforts  to  ascertain 
the  true  cause ;  but  realizing,  under  its  operation,  that  the 
favored  few  are  fast  becoming  owners  of  all  the  wealth  of 
the  country,  they  flatter  themselves  that  they  are  evangels  of 
economic  and  political  light  in  the  announcement  that  the 
state,  or  the  collective  people,  must  purchase  or  take  from 
the  favored  few  the  wealth  they  have  absorbed,  and  hold  it 
for  the  use  and  benefit  of  all. 

This  phantasm  of  economic  nightmare  dreamers  has  been 
the  bane  of  the  centuries,  and  has  caused  more  and  bloodier 
revolutions  than  all  other  economic  principles ;  but  when 
the  revolutions  had  spent  their  force,  the  unknown  but  pro- 
voking cause  remained  to  drive  conditions  on  to  other  and 
similar  revolutions.  The  undetected  dominant  cause  must 
be  ascertained  and  removed  before  permanent  relief  can  be 
secured.  The  indirect  effect  only  of  the  practical  workings 
of  the  cause  appears  in  the  creation  of  products.  Neither 
the  cause  nor  its  direct  effect  is  to  be  found  there,  for  its 
operation  is  retroactive. 

This  conclusion  is  forced  by  the  consideration  that  no 
better  method  of  procedure  for  the  creation  of  products 
could  be  devised,  thought  of,  or  originated  than  to  secure 
to  each  individual  the  privilege  to  labor  in  such  fields  of  pro- 


Introduction  9 

duction  as  his  taste,  talents,  capacity,  and  means  would 
incline  him.  Liberty  of  action  in  the  exercise  of  man's 
endowments  is  all  that  the  individual  needs,  is  all  that  he 
could  ask,  is  all  that  should  be  given  him ;  for  what  more 
could  he  use,  if  more  could  be  given? 

Since  only  the  effect  of  the  cause  could,  therefore,  appear 
in  the  creation  of  products, —  and  there  are  only  two  general 
principles  involved  in  man's  economic,  social,  and  political 
existence,  viz.,  the  method  of  procedure  for  the  creation, 
and  the  method  of  procedure  for  the  exchange  or  distribu- 
tion, of  the  surplus  products, —  it  is  evident  that  the  unknown 
cause  must  be  found  in  the  latter. 

If  the  cause  is  to  be  found  in  the  method  of  procedure 
for  the  exchange  of  products,  it  is  important,  in  order  that 
the  erroneous  cause  may  be  detected,  to  determine  what  is 
the  best  and  scientific  manner  in  which  products  should  be 
exchanged.  All  economists  agree  that  the  exchanges  should 
be  made  equitably ;  that  is,  the  producer  should  receive  a  full 
and  fair  equivalent  for  his  labor  upon  the  product 

The  scientific  method  of  procedure  for  the  exchange  of 
the  surplus  products  is,  therefore,  the  solution  of  the  prob- 
lem :  How  can  the  surplus  be  so  exchanged  as  to  secure  to 
the  producers  a  full  and  fair  equivalent  for  the  value  of 
the  labor  expended  in  creating  the  product?  If  securing  to 
the  producers  a  full  and  fair  equivalent  for  the  value  of 
their  labor  is  the  sole  object  in  devising  a  method  of  pro- 
cedure for  the  exchange  of  the  surplus  products,  then  labor 
is  the  source  of  all  value  ;  and  by  the  value  of  labor,  the  value 
of  everything  else  should  be  determined  and  regulated. 

But  how  is  the  value  of  labor  to  be  determined?  and 
after  it  is  determined,  how  is  it  to  be  expressed?  Political 
economists  are  of  the  opinion  that  labor  is  the  source  of  all 
value,  and  that  the  value  of  every  other  thing  should  be 


lo  Introduction 

determined  and  measured  by  its  value,  but  they  have  been 
unable  to  determine  and  express  the  value  of  labor. 

In  order  that  the  value  of  labor,  and  "  words  "  convey- 
ing the  ideas  of  those  labor  values,  might  be  determined 
upon,  it  was  necessary  to  establish  a  unit  of  labor  value,  and 
coin  a  "  word  "  to  represent  the  unit  and  convey  its  idea 
of  labor  value,  and  also  to  coin  "  words  "  to  represent  its 
multiples  and  subdivisons. 

No  economist  has  been  able  to  do  this.  They  admit 
that  it  is  an  impossibility ;  and  since  they  are  not  able  to 
devise  a  method  of  procedure  for  the  exchange  of  products 
without  the  use  of  a  unit  of  labor  value,  and  since  they^can 
neither  coin  nor  discover  a  word  or  expression  that  could 
be  used  to  represent  or  convey  the  idea  of  the  unit  of  labor 
value,  they  are  compelled,  as  they  admit,  to  reduce  products 
to  their  money  values,  in  order  that  their  exchange  may  be 
arranged  and  effectuated.  They  have,  therefore,  adopted 
the  money  unit  as  the  unit  of  value,  and  have  taught,  and 
to-day  teach,  that  the  method  of  procedure  for  the  equitable 
exchange,  or  distribution,  of  products  should  be  based  upon 
the  values  of  the  products  after  they  have  been  reduced  to 
their  money  value. 

The  solution  of  the  problem  of  the  scientific  method  of 
procedure  for  the  exchange  of  products  is  involved  in 
determining  what  has  been  done,  when  the  products  have 
been  reduced  to  their  money  values,  before  and  in  order  that 
their  exchange  may  be  effected. 

Syllogistically  expressed,  the  matter  would  be  as  fol- 
lows :  — 

Labor  is  the  source  of  all  value,  and  by  its  value  the 
value  of  every  other  thing  should  be  determined  and  regu- 
lated. 

Products  are  the  result  of  labor,  and  their  values  are  the 


Introduction  u 

value  of  the  labor  that  has  been  expended  upon  them  in  pre- 
paring them  for  man's  use  and  enjoyment. 

The  value  of  products  can  only  be  legally  expressed  in 
dollars,  dimes,  cents,  and  mills,  in  the  United  States;  ergo, 
dollars,  dimes,  cents,  and  mills  are  expressions  of  labor 
value.  But  the  expressions,  or  words,  dollars,  dimes,  cents, 
and  mills,  are  the  language  of  finance,  or  "  the  money  of 
account  "  of  the  United  States. 

The  unit  of  value  of  the  "  money  of  account  "  of  the 
United  States  is  the  "  word  "  dollar ;  ergo,  the  "  word  "  dol- 
lar, the  unit  of  the  "  money  of  account  "  of  this  country,  is 
the  labor  unit  of  value,  inasmuch  as  dollars,  dimes,  cents, 
and  mills  are  labor  expressions  of  value,  and  the  only  way 
in  which  the  value  of  products  can  be  expressed. 

In  scientific  accuracy  of  expression,  has  the  labor  value 
of  products  been  expressed  in  money  when  the  values  of 
products  have  been  reduced  to  their  expressions  of  value 
in  the  "words"  dollars,  dimes,  cents,  and  mills?  The 
products  have  only  been  expressed  in  their  labor  values  when 
they  have  been  reduced  to  their  expressions  of  value  in  dol- 
lars, dimes,  cents,  and  mills  —  our  "  money  of  account." 

"  Money  of  account,"  or  the  language  of  finance,  is  com- 
posed of  the  "  words  "  coined  by  tjie  people  to  indicate  and 
determine  the  labor  values  of  their  products ;  for  "  money  of 
account  '  is  the  growth  of  a  vocabulary  among  a  people  to 
express  their  abstract  idea  of  the  labor  value  of  their  prod- 
ucts, which  was  necessary  to  enable  them  intelligently  and 
equitably  to  effect  exchanges. 

This  scientific  truth,  so  important  in  forming  a  method 
of  procedure  for  the  exchange  or  distribution  of  products, 
has  escaped  the  penetration  of  the  economic  writers  of  the 
past,  and  is  ignored  by,  or  unknown  to,  those  of  the  present 
day.     Protracted  ignorance  of  this  scientific  truth   (due  to 


12  Introduction 

fetish  worship  of  the  metals  gold  and  silver)  accounts  for 
the  erroneous  financial  system  in  operation. 

If  the  "  words  "  that  constitute  the  "  money  of  account  " 
are  but  the  abstract  expressions  of  labor  values,  and  if  it  is 
necessary  to  reduce  the  value  of  products  to  the  expressions 
of  their  labor  value  to  make  equitable  exchanges,  and  if  it 
is  also  necessary  that  tokens,  counters,  or  representatives 
of  these  abstract  expressions  of  labor  values  should  be 
emitted  to  effect  those  exchanges,  is  it  not  essential  that 
they  shall  be  so  issued,  or  emitted,  as  to  preserve  the  labor 
values  in  which  they  are  emitted?  Herein  lies  the  solution 
of  the  scientific  issue  of  tokens,  counters,  or  the  represent- 
atives of  the  abstract  expressions  of  labor  values,  or  what 
is  commonly  known  as  money,  or  what  more  scientifically 
may  be  called  the  method  of  procedure  for  the  exchange  or 
distribution  of  products, —  the  second  of  the  two  grand  divi- 
sions of  all  economic,  social,  and  political  principles. 

The  representatives  of  the  abstract  expressions  of  labor 
values  should  be  so  issued  that  they  will  secure  that  equality 
of  right  and  opportunity  in  the  exchange  of  products  that 
is  secured  by  industrial  freedom,  or  liberalism,  in  the  cre- 
ation of  products ;  and  it  is  evident  that  this  can  not  be 
accomplished  unless  they  are  so  issued  that  they  will  retain 
the  labor  expressions  of  value  in  which  they  are  necessarily 
emitted. 

Inasmuch  therefore  as  labor  is  the  source  of  all  value, 
value,  as  an  abstraction,  may  be  defined  as  the  relative  util- 
ity or  exchangeability  of  products  to  each  other,  considering 
only  the  labor  that  has  been  expended  in  preparing  the 
products  for  man's  use  and  enjoyment,  and  which  finds  its 
expression  in  the  "  words  "  coined  and  used  to  express  this 
relative  utility  or  exchangeability. 

Since  representatives  conveying  the  meaning  of  the  labor 


Introduction  I3 

value  inherent  in  the  "  words  "  that  are  used  to  name  them, 
have  to  be  issued  to  aid  in  the  exchange  of  products,  it  is 
evident  that  they  should  and  must  be  so  issued  as  to  retain 
and  preserve  the  value  implied  by  the  use  and  inherent  in 
the  "  words  "  they  represent. 

It  is  proper  now  to  consider  how  the  representatives  of 
the  "  money  of  account,"  or  the  representatives  of  the 
abstract  labor  expressions  of  value,  are  issued.  Under  the 
financial  system  that  has  been  in  operation  for  centuries, 
the  metals,  gold  and  silver,  have  been  given  the  exclusive 
right  to  act  as  representatives  of  the  "  money  of  account " 
of  the  different  nations.  Is  the  expression  of  labor  value, 
in  which  the  representatives  of  the  "  money  of  account " 
are  always  issued,  preserved  when  they  are  made  out  of 
gold  and  silver? 

The  effect  of  bestowing  upon  gold  and  silver  the  sole 
and  exclusive  right  to  act  as  the  representatives  of  the 
"money  of  account,"  operates  to  change  the  value  of  the 
representatives  from  their  expressions  of  labor  value  to  the 
value  of  gold  and  silver. 

Therefore  when  gold  and  silver  are  used,  and  the  abstract 
expressions  of  labor  value  are  represented  by  concrete  ex- 
pressions of  gold  and  silver  legal-tender  coins,  value,  as  a 
concretion,  may  be  defined  as  the  relative  utility  or  exchange- 
ability of  products  to  each  other,  considering  only  the  labor 
that  has  been  expended  in  securing  and  preparing  the  gold 
and  silver  for  man's  use  and  enjoyment,  and  which  finds  its 
expression  in  the  coins  bearing  the  name  of  the  "  words  " 
of  the  "  money  of  account  "  that  are  used  to  express  this  rel- 
ative utility  or  exchangeability. 

This  change  in  the  value  of  the  representatives  of  the 
"  money  of  account  "  from  their  scientific  and  natural  ex- 
pression of  the  labor  values  they  were  originated  to  express, 


14  Introduction 

to  the  enacted  and  artificial  value  of  the  gold  and  silver  coins 
they  are  made  to  convey,  works  all  that  injustice  to  the  pro- 
ducers, and  all  that  undue  advantage  of  the  favored  few,  that 
has  so  sorely  afflicted  the  world  for  centuries. 

Adam  Smith  saw,  but  did  not  comprehend,  the  disastrous 
workings  of  the  change.  Its  practical  operation  completely 
nullified  the  efficiency  of  his  otherwise  great  work,  "  The 
Wealth  of  Nations."  Instead  of  detecting  the  error,  and 
consequent  abuses  inherent  and  involved,  in  changing  the 
representatives  of  the  "  money  of  account  "  from  their  ex- 
pressions of  labor  value  to  the  concrete  value  of  gold  and 
silver,  he,  in  his  ignorance  of  "  money  of  account "  and  the 
history  of  its  origin  and  growth,  accepted  the  heresy  of  the 
centuries ;  viz.,  that  gold  and  silver  were  the  only  substances 
fit  to  be  used  as  the  representatives  of  the  "  money  of 
account ;  "  or,  as  he  understood  and  termed  it,  they  were 
the  only  substances  fit  to  be  used  as  money. 

Mr.  Smith,  however,  insisted  that  labor  was  and  should 
be  the  source  of  all  value,  and  by  its  value  the  value  of 
other  things  should  and  must  be  measured  and  regulated; 
but  as  he  had  no  comprehension  of  "  money  of  account," 
nor  knowledge  of  what  the  "  words  "  that  compose  it  were 
originated  to  convey,  or  that  its  unit  was  the  labor  unit  of 
value,  he  was  compelled  to  make  the  mistake  of  accepting 
as  the  unit  of  value  the  concrete  gold  and  silver  expressions 
of  that  unit. 

It  is  impossible  for  the  human  intellect,  however  pro- 
found, to  change  for  the  better  that  which,  in  the  necessity 
of  things,  a  people  have  been  compelled  to  originate  and 
develop,  as  the  chief  ingredient  of  their  prosperity,  in  their 
progress  along  the  pathway  of  civilization. 

The  labor  unit  of  value,  and  its  multiples  and  subdivi- 
sions, as  set  forth  in  the  "  money  of  account  "  of  a  people,  is 


Introduction  i5 

the  growth,  born  of  their  necessities,  of  their  highest  intclH- 
gence ;  and  it  is  unwise  for  it  to  be  ignored  and  set  aside 
for  a  substitute  devised  by  man,  to  assist  and  promote  a 
heresy  that  avarice  and  hist  for  power  has  foisted  upon  civ- 
iHzation. 

Mr.  Smith,  ignoring  the  fact  that  the  unit  of  the  "  money 
of  account "  was  the  labor  unit  of  value,  endeavored  to 
devise  an  honest  and  scientific  substitute  labor  unit  of  value 
in  order  that  an  equitable  exchange  of  products  might  be 
made.  This  he  was  unable  to  do;  and  he  therefore  was 
driven,  as  all  economists,  prior  and  subsequent,  have  been, 
to  reduce  products  to  their  expressions  of  labor  value  as  set 
forth  in  the  "money  of  account,"  but  which,  he  erroneously 
supposed  and  assumed,  was  their  money  value,  or  value 
measured  by  gold  and  silver. 

Mr.  Smith  was  an  economic  student  and  teacher,  endeav- 
oring to  ascertain  and  set  forth  the  nature  and  causes  of  the 
wealth  of  nations.  His  purpose  was  to  analyze  the  processes 
of  the  method  of  procedure  for  the  creation  and  exchange 
of  products,  in  order  that  he  might  detect  and  point  out  the 
errors  of  the  system  in  operation,  and  indicate  the  correct 
method. 

His  acceptance  of  the  heresy  that  gold  and  silver  should 
have  the  exclusive  right  to  act  as  the  representatives  of  the 
"  money  of  account,"  or  that  gold  and  silver  coins  were 
money,  and  therefore  value  that  measured  and  regulated  the 
value  of  all  other  things,  vitiated  his  reasoning.  The  injus- 
tice and  oppression  arising  out  of  the  natural,  legal,  and 
practical  operation  of  such  a  system  confronted  him;  but 
as  he  neither  knew  nor  comprehended  the  cause,  he  endeav- 
ored to  explain  or  adjust  his  reasoning  to  meet  these  con- 
ditions. 

In  discussing  the  measure  or  value  of  products,  he  writes  : 


i6  Introduction 

"  Every  man  is  rich  or  poor  according  to  the  degree  in 
which  he  can  afford  to  enjoy  the  necessaries,  conveniences, 
and  amusements  of  human  hfe.  But  after  the  division  of 
labor  has  once  thoroughly  taken  place,  it  is  but  a  very  small 
part  of  those  with  which  a  man's  own  labor  can  supply  him. 
The  far  greater  part  of  them  he  must  derive  from  the  labor 
of  other  people,  and  he  must  be  rich  or  poor  according  to 
the  quantity  of  labor  which  he  can  command,  or  which  he 
can  afford  to  purchase.  The  value  of  any  commodity,  there- 
fore, to  the  person  who  possesses  it,  and  who  means  not 
to  use  or  consume  it  himself,  but  to  exchange  it  for  other 
commodities,  is  equal  to  the  quantity  of  labor  which  it 
enables  him  to  purchase  or  command.  .  .  .  Labor,  therefore, 
is  the  real  measure  of  the  exchangeable  value  of  all  com- 
modities."— "Wealth  of  Nations,"  Vol.  i,  page  45. 

The  statement  that  labor  is  the  real  measure  of  the 
exchangeable  value  of  all  commodities,  was  the  conclusion 
of  Mr.  Smith's  previous  examination  of  the  subject,  and  has 
not  and  can  not  be  successfully  refuted.  The  application 
of  the  principle  is  wherein  Mr.  Smith  failed;  and  this  was 
solely  due  to  his  acceptance  of  the  error  that  gold  and  silver 
were  and  should  be  money,  and  therefore  the  value  that 
measured  the  exchangeable  value  of  all  commodities. 

If  labor  is  and  should  be  the  real  value  with  which  the 
value  of  other  things  should  be  measured  and  regulated  in 
making  exchange  of  products,  and  gold  and  silver  are  the 
value  by  which  they  are  measured  and  regulated,  then  gold 
and  silver  coins  should  represent  the  value  of  labor,  and  be 
its  equivalent  at  all  times,  in  order  that  exchanges  might  be 
equitable. 

Mr.  Smith  realized  this;  and  though  he  saw  that  the 
measure  of  the  value  of  commodities  was  being  made  by 
gold  and  silver,  and  not  by  labor,  he  writes :  "  In  order  to 


Introduction  i? 

investigate  the  principles  which  regulate  the  exchangeable 
value  of  commodities,  I  shall  endeavor  to  show,  first,  what 
is  the  real  measure  of  this  exchangeable  value,  or  wherein 
consists  the  real  price  of  all  commodities ;  secondly,  what  are 
the  different  parts  of  which  this  real  price  is  composed  or 
made  up ;  and,  lastly,  what  are  the  different  circumstances 
which  sometimes  raise  some  or  all  of  these  different  parts  of 
price  above,  and  sometimes  send  them  below  their  natural 
or  ordinary  rate ;  or  what  are  the  causes  which  sometimes 
hinder  the  market  price,  that  is,  the  actual  price  of  com- 
modities, from  coinciding  exactly  with  what  may  be  called 
their  natural  price.'" — "Wealth  of  Nations,"  Vol.  i,pp.  44,  45. 

In  his  effort  to  ascertain  what  is  the  real  measure,  he 
writes :  "  But  though  labor  be  the  real  measure  of  the 
exchangeable  value  of  all  commodities,  it  is  not  that  by 
which  their  value  is  commonly  estimated.  It  is  often  diffi- 
cult to  ascertain  the  proportion  between  two  different  kinds 
of  labor.  .  .  . 

"  Every  commodity  besides,  is  more  frequently  ex- 
changed for,  and  thereby  compared  with,  other  commodities 
than  with  labor.  It  is  more  natural,  therefore,  to  estimate 
its  exchangeable  value  by  the  quantity  of  some  other  com- 
modity than  by  that  of  the  labor  which  it  can  purchase. 
The  greater  part  of  people,  too,  understand  better  what  is 
meant  by  a  quantity  of  a  particular  commodity  than  by  a 
quantity  of  labor.  The  one  is  a  plain,  palpable  object;  the 
other  an  abstract  notion,  which,  though  it  can  be  made  suffi- 
ciently intelligible,  is  not  altogether  so  natural  and  obvious." 
—  Id.,  pages  48,  49. 

This  abstract  notion  which  Islv.  Smith  dismisses  as  not 
so  natural  and  obvious,  was  the  "  money  of  account,"  which 
speaks  in  the  expressions  of  labor  value  whenever  a  value  is 
given  products.    Continuing  his  search  for  the  real  measure, 


i8  Introduction 

he  writes :  "  But  when  barter  ceases,  and  money  has  become 
the  common  instrument  of  commerce,  every  particular  com- 
modity is  more  frequently  exchanged  for  money  than  for 
any  other  commodity.  .  .  .  Hence  it  comes  to  pass,  that  the 
exchangeable  value  of  every  commodity  is  more  frequently 
estimated  by  the  quantity  of  money  than  by  the  quantity  of 
either  labor  or  of  any  other  commodity  which  can  be  had 
in  exchange  for  xt:'— "Wealth  of  Nations,"  Vol.  i,  page  49. 

Mr.  Smith  has  very  evidently  overlooked  two  very  im- 
portant things,  and  the  failure  to  recognize  and  take  them 
into  consideration  at  once  proves  embarrassing.  He  over- 
looked the  fact  that  the  language  of  finance,  to  which  he 
reduced  the  products  to  ascertain  their  value,  is  the  labor 
expressions  of  their  value,  and  not  their  value  in  gold  and 
silver  coins;  and  he  also  overlooked  the  fact  that  ninety- 
seven  per  cent  of  all  exchange  of  commodities  is  merely 
exchanging  commodities  with  commodities,  after  reducing 
them  to  their  expressions  of  labor  value  in  the  "  money  of 
account,"  and  that  only  three  per  cent  of  the  exchanges  are 
made  by  exchanging  commodities  for  gold  and  silver  coins, 
or  money. 

He  realized  the  trouble  he  was  drifting  into  when  he 
decided  that  the  real  measure  of  the  exchange  value  of  all 
comriiodities  was  concrete  money,  as  he  thought,  when  in 
fact  it  was  merely  expressions  of  labor  value ;  and,  in  a  foot- 
note, he  defines  the  sense  in  which  he  used  the  word 
"  money,"  as  follows :  "  The  most  accurate,  and  at  the  same 
time  the  most  familiar  and  easily  understood,  definition  of 
money  is  given  by  considering  it  entirely  as  a  measure  of 
value,  in  the  same  manner  that  an  inch  or  a  foot  is  the 
length  of  an  object.  It  is  best,  in  the  consideration  of 
metal,  as  money,  to  think  nothing  of  intrinsic  value,  then  the 
idea  becomes  more  simple  and  clear  than  when  there  is  a 


Introduction  i9 

confusion  between  the  money  as  a  measure  and  as  mer- 
chandise." 

If  intrinsic  vakie  of  the  metals  is  ehminated,  then  money 
is  the  mere  representative  of  the  abstract  expression  of  labor 
value,  or  "  money  of  account ;  "  but  if  not,  then  to  the  extent 
that- the  intrinsic  value  of  the  metal  operates  in  the  meas- 
urement of  values,  it  is  error,  according  to  Mr.  Smith's  def- 
inition of  the  sense  in  which  money  should  be  considered. 

Confronted  by  the  element  of  intrinsic  value  in  the  real 
measure  he  was  forced  to  accept,  he,  in  his  ignorance  of 
"  money  of  account,"  continues  as  follows  :  "  Gold  and  silver, 
however,  like  every  other  commodity,  vary  in  their  value ; 
are  sometimes  cheaper  and  sometimes  dearer,  sometimes  of 
easier  and  sometimes  of  more  difficult  purchase.  The  quan- 
tity of  labor  which  any  particular  quantity  of  them  can  pur- 
chase or  command,  or  the  quantity  of  other  goods  which  it 
will  exchange  for,  depends  always  upon  the  fertility  or  bar- 
renness of  the  mines  which  happens  to  be  known  about  the 
time  when  such  exchanges  are  made.  .  .  .  But  as  a  meas- 
ure of  quantity,  such  as  the  natural  foot,  fathom,  or  handful, 
which  is  continuously  varying  in  its  own  quantity,  can  never 
be  an  accurate  measure  of  the  quantity  of  other  things,  so 
a  commodity  which  is  itself  continually  varying  in  its  own 
value  can  never  be  an  accurate  measure  of  the  value  of 
other  commodities.  ... 

"Labor  alone,"  he  adds,  "therefore,  never  varying  in 
its  own  value,  is  alone  the  ultimate  and  real  standard  by 
which  the  value  of  all  commodities  can  at  all  times  and 
places  be  estimated  and  compared.  It  is  their  real  price; 
money  is  their  nominal  price  only." — "Wealth  of  Nations," 
Vol.  I,  pages  fjo,  5/. 

The  above  shows  that  Mr.  Smith  fully  appreciated, 
though  he  did  not  understand,  the  discrepancy  that  arose 


20  Introduction 

in  practise  between  the  labor  value  in  which  products  are 
created  and  should  be  exchanged,  and  the  gold  and  silver, 
or  money  value,  in  which  they  are  exchanged.  In  his  fetish 
worship  of  gold  and  silver,  as  money,  he  is  content  to  desig- 
nate the  labor  value  of  commodities  as  their  real  and  natural 
price,  and  their  exchangeable  value  as  their  market,  money, 
or  nominal  price,  meaning  thereby  the  legal-tender  money 
products  will  command  under  the  system  he  accepted. 

"  Labor,  like  commodities,"  he  writes,  "  may  be  said  to 
have  a  real  and  a  nominal  price.  Its  real  price  may  be  said 
to  consist  in  the  quantity  of  the  necessaries  and  conveniences 
of  life  which  are  given  for  it :  its  nominal  price  is  the  quan- 
tity of  money.  The  laborer  is  rich  or  poor,  is  well  or  ill 
rewarded,  in  proportion  to  the  real,  not  the  nominal,  price 
of  his  labor.  The  distinction  between  the  real  and  the  nom- 
inal price  of  commodities  and  labor  is  not  a  matter  of  mere 
speculation,  but  may  sometimes  be  considerably  used  in  prac- 
tise. The  same  real  price  is  always  the  same  value ;  but  on 
account  of  the  variations  in  the  value  of  gold  and  silver,  the 
same  nominal  price  is  sometimes  of  very  different  values." 
— "Wealth  of  Nations,"  Vol.  i,  page  52. 

This  makes  it  incumbent  upon  him,  in  order  that  he  may 
pursue  his  examination  of  the  subject,  to  define  the  word 
"  price,"  which  he  does  as  follows  :  "  The  real  price  of  every- 
thing, what  everything  really  costs  to  the  man  who  wants 
to  acquire  it,  is  the  toil  and  trouble  of  acquiring  it." — Id., 
page  46. 

This  is  only  another  way  of  asserting  that  the  labor 
expended  in  creating  the  product  is  its  real  price  or  value. 

"  What  everything  is  really  worth  to  the  man  who  has 
acquired  it,  and  who  wants  to  dispose  of  it  or  exchange  it 
for  something  else,  is  the  toil  and  trouble  which  it  can  save 
to  himself,  and  which  it  can  impose  upon  other  people  " —  Id. 


Introduction  21 

This  statement  involves  two  transactions ;  one,  Mr.  Smith 
had  no  comprehension  of,  and  the  other,  he  misconceives 
and  distorts. 

The  exchange  between  the  man  who  produced  and  the 
man  who  acquired  may  be  made  without  the  aid  of  gold  and 
silver  coins.  It  is  done  by  the  use  of  the  expressions  of 
labor  value,  or  "  money  of  account,"  to  determine  the  dif- 
ferent values  of  the  products  of  each ;  and  the  difference,  if 
any,  stands  as  a  balance  of  labor  value  due  by  one  to  the 
other,  expressed  in  the  "  money  of  account,"  for  which  a 
note  or  other  evidence  of  debt  may  be  given,  to  be  paid  in 
the  future  by  an  equivalent  labor  value  in  some  product. 

It  is  only  in  such  transactions  that  real  price  means  "  the 
toil  and  trouble  which  the  acquired  can  save  to  himself,"  for 
in  such  cases  both  have  acquired  the  products  of  the  other 
through  the  use  of  "  money  of  account,"  which  was  neces- 
sary to  express  the  labor  value  of  the  products  of  each,  in 
order  that  they  might  intelligently  effect  an  equitable  ex- 
change. This  was  accomplished  without  the  aid  of,  or  with- 
out any  reference  to,  gold  and  silver  coins  as  the  measure  of 
value  of  the  products. 

In  its  more  varied  and  larger  operations  this  class  of 
transactions  is  conducted  by  "  the  credit  system,"  or  book- 
keeping, wherever  there  is  a  mutual  exchange  of  products  at 
their  labor  expressions  of  value ;  of  which  an  account  is  kept 
by  each  upon  books  in  "  money  of  account,"  or  labor  ex- 
pressions of  value,  and  the  balances  only  are  settled  with 
gold  and  silver  coin,  or  actual  legal-tender  money. 

Representatives  of  the  labor  expressions  of  the  value  of 
the  products  are  issued  as  aids  to  "  the  credit  system,"  or 
bookkeeping,  as  it  is  called,  and  they  are  notes,  inland  and 
foreign  bills  of  exchange,  drafts,  bills  of  lading,  warehouse 
receipts,  and  other  devices  employed.    Ninety-seven  per  cent 


22  Introduction 

of  all  exchanges,  or  of  the  volume  of  business,  are  conducted 
by  the  credit  system,  aided  by  representatives  of  the  labor 
expression  of  the  value  of  the  products,  and  only  the  bal- 
ances are  settled  in  actual  or  legal-tender  gold  and  silver 
money. 

The  manner  in  which  ninety-seven  per  cent  of  the  vol- 
ume of  business  is  conducted  was  ignored  or  not  under- 
stood by  ]\Ir.  Smith,  and  he  makes  its  success  dependent 
upon  the  second  class  of  transactions  involved  in  the  last 
clause  of  the  paragraph,  which  reads,  "  and  which  it  can 
impose  upon  other  people." 

This  second  class  of  transactions  includes  those  who  pur- 
chase with  gold  and  silver  coins,  or  legal-tender  money,  the 
surplus  products.  Mr.  Smith  stated  but  half  a  truth  when 
he  wrote,  "  What  everything  is  really  worth  to  the  man  who 
has  acquired  it,  and  who  wants  to  dispose  of  it  or  exchange 
it  for  something  else,  is  the  toil  and  trouble  .  .  .  which  it  can 
impose  upon  other  people."  He  'could  have  rounded  his 
sentence  into  a  full  truth  by  the  statement  that  what  every- 
thing is  really  worth  to  the  man  who  has  acquired  it  by 
purchase  with  gold  and  silver  coins,  or  legal-tender  money, 
is  the  sacrifice  of  toil  and  trouble  he  can  and  does  impose 
upon  the  producer,  from  whom  he  purchases,  and  under  cer- 
tain conditions  the  toil  and  trouble  he  imposes  upon  the  con- 
sumer, to  whom  he  sells. 

Mr.  Smith  evinces  no  appreciation  nor  comprehension 
of  the  half  truth  his  enforced  observation,  or  may  be  his 
experience,  compelled  him  to  admit ;  for  in  his  desire  to  be 
true  to  his  conclusion  that  "  labor  is  the  real  measure  of 
the  exchangeable  value  of  all  commodities,"  he  writes  that 
"  what  is  bought  with  money,  is  purchased  by  labor,  as  much 
as  what  we  acquire  by  the  toil  of  our  body.  That  money 
.  .  .  indeed  saves  us  this  toil.    They  contain  the  value  of  a 


Introduction  23 

certain  quantity  of  labor,  which  we  exchange  for  what  is 
supposed  at  the  time  to  contain  the  value  of  an  equal  quan- 
tity."— "IVcalth  of  Nations,"  Vol.  i ,  pai^cs  46,  47. 

It  does  not  follow  as  a  non  sequitur,  that  because  that 
which  a  man  purchases  with  his  legal-tender  money  con- 
tained the  value  of  a  certain  quantity  of  labor,  the  metal  in 
the  legal-tender  money  had  been  obtained  only  upon  the 
expenditure  of  an  equal  quantity  of  labor ;  nor  does  Mr. 
Smith  contend  that  it  does.  He  is  satisfied  with  the  state- 
ment that  it  is  supposed  at  the  time  to  contain  an  equal 
quantity  of  labor. 

Mr.  Smith's  supposition  was  based  upon  the  use  that  had 
been  made  of  gold  and  silver  through  the  centuries,  but  he 
overlooked  the  fact  that  it  required  the  full  power  of  the 
Government,  as  expressed  and  enforced  by  its  legal-tender 
enactments,  to  make  the  producer  part  with  his  product  for 
the  money  at  that  supposed  value. 

The  power  of  legal  tender,  when  bestowed  as  an  exclusive 
right  upon  gold  and  silver,  forces  the  people  to  purchase 
with  their  products  from  the  owners  of  gold  and  silver  the 
metal  representatives  of  their  "  money  of  account,"  in  order 
that  they  may  first  create  and  then  exchange  their  products 
in  their  efifort  to  make  a  living. 

Dependent  for  their  existence  upon  the  use  of  represent- 
atives of  their  "  money  of  account,"  and  denied  the  right 
by  the  Government  to  issue  legal-tender  representatives,  the 
people  are  compelled  to  issue  their  representatives  at  the 
labor  expressions  of  value,  and  purchase  all  the  legal-tender 
representatives  of  the  "  money  of  account "  they  may  need 
at  such  valuation  as  the  owners  of  the  metals  may  see  fit  to 
exact. 

Nor  is  this  all ;  though  they  are  compelled  to  issue  repre- 
sentatives of  the  "  money  of  account  "  at  their  labor  expres- 


24  Introduction 

sions  of  value  in  order  that  they  may  carry  on  business  and 
make  a  Hving  (and  the  more  business  they-  do,  the  more 
representatives  they  issue),  it  is  in  the  conscious  dread 
that  the  owners  of  gold  and  silver  —  those  who  have  the  sole 
right  to  issue  legal-tender  representatives  of  the  "  money 
of  account  " —  are  getting  possession  of  their  labor  repre- 
sentatives, and  have  the  right  to  demand,  and  the  judicial 
power  of  the  country  to  enforce,  their  payment  in  the  legal 
tenders  which  they  own  and  issue. 

The  scarcity  of  gold  and  silver,  throughout  the  centuries, 
has  been  such  that  they  have  never  been  sufficient  to  supply 
the  demand  for  the  coins  needed  in  the  small  proportion 
of  the  volume  of  business  they  are  used  to  conduct.  This 
has  been  made  to  enure  to  the  advantage  of  the  metal 
owners ;  for,  instead  of  changing  the  system,  and  devising 
a  method  that  would  provide  for  the  issue  of  enough  repre- 
sentatives, the  theory  of  banking  was  originated. 

Under  the  banking  system  the  owners  of  gold  and  silver 
supply  the  demand  by  the  issue  of  bank-notes,  as  represent- 
atives of  the  "  money  of  account,"  upon  the  theory  that  they 
are  substitutes  for  gold  and  silver  coins,  and  will  be  re- 
deemed in  the  coins  upon  demand.  Since  the  Government 
grants  them,  as  bankers,  the  right  it  withholds  from  the 
people,  the  people  are  under  the  necessity  of  purchasing 
the  bank-notes  from  the  gold  and  silver  owners  in  order 
that  they  may  make  a  living.  It  is  well  known,  however, 
that  only  three  per  cent  of  the  volume  of  the  business  of 
the  country  is  conducted  with  the  use  of  gold  and  silver 
coins  and  bank-notes. 

The  balance,  ninety-seven  per  cent  of  the  volume  of 
business,  it  is  equally  well  known,  is  conducted  without  the 
use  of  legal-tender  gold  and  silver  coins,  and  their  assistants, 
bank-notes.     This  ninety-seven  per  cent  is  conducted  by  the 


Introduction  25 

aid  and  use  of  the  representatives  of  the  "  money  of  account  " 
that  the  people  have  issued  at  their  labor  expressions  of 
value,  but  which  are  not  given  legal-tender  value. 

Without  the  use  of  these  non-legal-tender  representatives, 
people  could  not  transact  ninety-seven  per  cent  of  their  busi- 
ness, and  stagnation,  starvation,  and  death  would  soon  visit 
them. 

The  periods  of  prosperity  are  due  to  what  is  called 
excessive  issues  of  these  representatives  at  their  expressions 
of  labor  value.  It  is  contended  that  these  excessive  issues 
are  the  cause  of  the  panics  which  bring  loss  and  suffering 
upon  the  people. 

It  is  by  the  use  of  those  representatives  that  improve- 
ments are  made,  industries  increased,  homes  are  built,  debts 
are  paid,  and  all  are  employed  at  remunerative  wages.  It 
is  by  the  use  of  these  representatives,  though  new  debts  are 
being  made,  that  the  old  accumulated  debt  that  has  hung 
like  a  nightmare  upon  the  neck  of  honesty  industry,  is  paid. 
If  such  a  condition  does  not  indicate  prosperity,  then  what 
is  prosperity?  and  how  may  a  people  know  when  they  are 
prospering?  And  yet  these  excessive  issues,  at  their  ex- 
pressions of  labor  values,  are  the  sure  precursors  of  the 
panics  that  occasion  the  greatest  loss ;  and  the  amount  of 
loss  and  the  sufferings  of  the  people  is  in  strict  proportion 
to  the  excessive  issue. 

The  certainty  of  a  panic  following  upon  the  excessive 
issues  is  so  well  known,  and  an  intelligent  people  have 
been  so  often  and  so  sorely  afflicted,  that  they  deny  the  evi- 
dence of  their  senses,  and  denominate  the  periods  of  their 
greatest  prosperity  as  the  periods  of  the  wildest  speculation. 
They  regard  the  effect  of  the  cause  as  the  cause,  and  have 
therefore  failed  to  ascertain  and  remove  the  cause,  though 
they  suffer  from  the  panics  at  regularly  recurring  periods. 


26  Introduction 

The  cause  of  the  panics  that  invariably  follow  upon  the 
excessive  issues,  is  solely  and  altogether  due  to  the  fact  that 
the  Government  gives  the  right  and  power  to  the  owners  of 
the  gold  and  silver  coins  to  demand  and  enforce  the  payment 
of  all  the  non-legal-tender  representatives,  issued  at  their 
labor  expressions  of  value,  in  the  value  that  the  owners  of 
gold  and  silver  see  fit  to  place  upon  their  coins. 

The  endeavor  to  force  the  payment  of  the  non-legal-ten- 
der representatives,  or  the  issues  of  labor  values,  in  the  legal- 
tender  representatives,  or  gold  and  silver  coins,  is  an  impos- 
sibility; for  the  vast  quantity  of  non-legal  tenders  that  have 
been  issued  at  their  labor  expressions  of  value  to  conduct 
ninety-seven  per  cent  of  the  volume  of  business  can  not  be 
paid,  or  redeemed,  in  the  limited  number  of  legal-tender 
values,  or  coins,  that  conduct  only  three  per  cent  of  the  vol-" 
ume  of  business. 

Though  it  is  an  impossibility,  the  demand  for  payment 
is  made  at  regularly  recurring  periods ;  and  if  it  is  not  com- 
plied with,  the  judicial  power  of  the  Government  is  invoked 
to  enforce  the  payment.  Decrees  are  rendered  in  favor  of 
the  holders  of  the  non-legal  tenders  to  the  amount  of  the 
face  value  of  the  labor  representatives  held  by  them,  and  if 
those  who  issued  them  can  not  secure  legal  tenders,  or  gold 
and  silver  coins,  to  satisfy  the  decree,  their  property  is  sold 
for  any  price  it  will  bring  under  such  a  condition  of  affairs. 

The  result  is  that  the  creditors  take  from  the  debtors, — 
or  rather  the  owners  of  gold  and  silver  take  from  the 
producers,  who  issue  the  non-legal  tenders, —  all  the  prop- 
erty they  have,  and  frequently  hold  a  judgment,  or  decree, 
for  the  unsatisfied  balance.  When  the  producer,  at  the 
height  of  his  prosperity,  is  suddenly  and  without  warning 
deprived  of  all  he  has  by  legislation,  which.changes  the  labor 
value  of  his  representatives  of  the  "  money  of  account "  to 


I nlroJiK  lion  27 

the  value  of  legal-tender  gold  and  silver  coins,  and  has  a 
judicial  decree  against  him  that  enables  the  owners  of  the 
judgment,  or  decree,  to  seize  his  future  earnings,  he  gives 
up  all  hope,  and  abandons  himself  to  despair,  for  all  incentive 
to  further  efifort,  in  many  instances,  is  gone.  To  remave 
his  despair,  and  make  of  him  a  good  citizen,  the  Government 
comes  to  his  relief,  and  passes  bankrupt  laws  for  his  benefit, 
if  he  wishes  to  incur  the  odium. 

The  governmental  power  of  legal  tender,  and  the  bank- 
ing system  bestowed  upon  the  owners  of  gold  and  silver, 
has  been  the  source  and  cause  of  that  "empire  of  misery" 
that  has  for  so  long  a  time  been  the  heritage  of  humanity. 

The  New  World  was  hailed  as  a  Mecca  where  the  down- 
trodden and  the  oppressed  of  the  Old  World  could  escape 
the  injustice  and  tyranny  of  such  a  system  for  the  creation 
and  dispersal  of  products.  The  oppressed  were  in  ignorance 
of  the  true  cause  of  their  sufferings.  They  did  not  compre- 
hend that  the  science  of  the  just  and  equitable  distribution 
of  products  depended  upon  and  was  controlled  by  the  method 
in  which  the  representatives  of  their  "  money  of  account  '* 
were  issued.  They  did  not  comprehend  that  "  money  of 
account  "  was  the  language  originated  and  used  to  express 
their  ideas  of  labor  values,  and  that  representatives  of  these 
ideas,  or  expressions,  of  labor  value  should  be  so  issued  as 
to  retain  and  preserve  the  labor  values. 

In  ignorance  of  these  essential  and  scientific  truths  the 
inhabitants  of  the  New  World  endeavored  to  form  a  Gov- 
ernment that  would  protect  them  and  their  posterity  from 
such  impositions  and  injustice  as  they  had  fled  from;  but 
they  unconsciously  adopted  the  same  financial  system,  or  the 
same  system  for  the  exchange  or  distribution  of  products, 
that  had  been  the  cause  of  their  llight. 

It  is  the  tragedy  of  the  centuries,  that  though  our  fore- 


28  Introduction 

fathers  issued  the  representatives  of  the  "money  of  account" 
at  their  labor  expressions  of  value,  in  order  that  they  might 
clear  up  the  country,  establish  themselves,  and  gain  their 
independence,  the  ignorant  greed  of  some  of  the  leaders 
was  such  that  they  induced  the  people  to  ignore  its  enjoyed 
benefits,  and  brought  the  severest  distress  upon  themselves 
and  posterity  by  adopting  the  European  heresy. 

The  capitalistic  class,  who  have  ever  been  the  dupes 
of  their  greed  and  lust  for  power  even  during  the  contest 
for  independence,  though  it  was  evident  that  the  issue  of 
the  representatives  of  their  "  money  of  account  "  at  their 
expressions  of  labor  values  was  winning  their  independence, 
nearly  defeated  the  effort  by  the  refusal  to  give  them  legal- 
tender  value. 

For  if  those  representatives,  issued  at  their  expression  of 
labor  value,  had  been  given  legal-tender  value,  that  value, 
as  it  is  protected  by  the  power  of  the  Government  and  will- 
ingly used  by  the  people,  would  have  preserved  their  labor 
values ;  but  when  that  was  refused,  and  it  was  enacted  that 
the  owners  of  gold  and  silver  should  have  the  exclusive 
right  to  legal-tender  value,  and  the  additional  right  to  de- 
mand payment  of  the  representatives  of  the  "  money  of 
account "  in  their  gold  and  silver  legal-tender  coins,  the 
effort  to  gain  their  independence  came  near  failing. 

The  fact  that  the  representatives  of  the  "  money  of 
account "  were  not  given  legal-tender  value  so  that  their 
labor  expressions  of  value  might  be  preserved,  but,  on  the 
contrary,  were  so  issued  that  the  capitalists  could  demand 
their  payment  at  any  time  in  the  value  of  gold  and  silver 
coins,  or  refuse  to  receive  them,  caused  their  depreciation, 
until  they  were  worthless.  After  this  had  been  accom- 
plished, the  people  were  forced  to  submit  to  the  inaugura- 
tion of  a  bank  of  issue,  as  an  aid  to  gold  and  silver  to 


Introduction  29 

supply  the  representatives  of  the  "  money  of  account  "  neces- 
sary to  win  their  inclei)endence. 

With  this  experience  in  the  struggle  to  escape  from  the 
tyranny  and  oppression  of  the  Old  World,  caused  by  the 
heresy  of  bestowing  upon  gold  and  silver  the  monopoly  of 
legal-tender  value,  which  gave  the  capitalists  the  right  to 
demand  and  the  power  to  compel  the  payment  of  all  labor 
values  in  the  value  of  their  gold  and  silver,  it  is  unaccount- 
able that  they  should  adopt  the  same  heresy,  and  make  it  the 
policy  of  the  Gdvernment  they  founded. 


Financial  and  Economic  Errors 

The  financial  and  economic  errors  operating  so  oppress- 
ively upon  the  people  for  the  benefit  of  the  privileged  few, 
are  always  due  to  the  influence  of  intellectual  and  inhuman 
avarice,  aided,  as  it  is,  by  the  chicanery  and  hypocrisy  of 
the  culture  of  a  higher  civilization,  and  they  are  more  diffi- 
cult to  explain  and  eradicate  than  any  other  class  of  evils 
from  which  humanity  suffers. 

This  is  due,  in  great  part,  to  the  fact  that  this  same  intel- 
ligent and  heartless  greed  is  always  in  control  of  the  Gov- 
ernment, or  is  the  beneficiary  of  class  legislation  to  such  an 
extent,  that  it  is  enabled  to  have  undue  infiuence  upon  the 
education  of  the  country  in  such  particulars  as  most  pro- 
mote and  assist  its  schemes  of  spoliation  by  enactments.  It 
is  further  due  to  the  many  theories  assumed,  and  the 
agencies  employed  in  fostering  and  inculcating  its  teachings. 

It  is  possible,  by  reason  of  these  instrumentalities  and 
false  teaching,  for  the  corrupt  theories  of  the  avaricious, 
which  have  a  fair  semblance  of  utility  and  essentiality,  to 
inaugurate  a  system  of  finance  that  is  not  only  fatal  to  the 
prosperity  of  the  people  and  the  nation,  but  cherished  as  a 
benefit. 

It  is  not  possible  to  clearly  expose  the  processes  of  the 
impure  motives  that  cause  the  growth  of  these  abuses  upon 
the  body  politic  by  synthetic  process,  for  the  reason  that  the 
facts,  expediencies,  and  policies  are  so  intricate,  so  depend- 
ent, and  so  variable  that  the  intellect  can  not  correllate  them 
into  anv  stable  system  which  can  be  accepted  as  a  correct 

31 


32 


The  Legal-Tender  Problem 


basis  upon  which  to  formulate  rules  of  action  for  the  eov- 
ernment  of  the  nations. 

Therefore,  though  experimental  philosophy  in  economics 
and  finance  has  held  sway  for  so  long  a  time  in  the  policies 
and  practises  of  the  more  civilized  nations,  its  justness,  util- 
ity, and  wisdom  are  more  seriously  questioned  now  than 
ever  before,  and  doubt  keeps  pace  with  the  injustice  and 
suffering  that  is  being  inflicted  upon  the  people. 

An  analysis,  however,  of  the  subject  of  finance  for  the 
double  purpose  of  (i)  ascertaining  the  cause  of  and  neces- 
sity for  its  origin,  the  method  of  its  growth  in  a  pure  form, 
and  the  benefits  that  accrue  to  a  people  and  a  nation  from  the 
practise  of  a  scientific  system;  and  (2)  detecting  and  noting 
the  impure  motives,  and  the  consequent  emanation  of  all 
the  unjust  and  perverting  abuses  that  have  been  engrafted 
upon  the  system, —  should  prove  highly  instructive,  and  be 
instrumental  in  removing  much  of  the  obscurity,  the  result 
of  false  teaching,  that  now  envelopes  the  question,  and  tend 
to  expose  the  iniquity  of  the  present  system. 

The  accepted  theory,  which  is  based  upon  gold  and  silver 
as  money  of  final  redemption,  nas  been  dominant  in  this 
country  since  its  first  formation,  and  has,  at  recurring 
periods,  produced  the  natural  panics  and  heavy  losses  that 
such  a  system  always  guarantees. 

The  limitation  of  the  money  of  final  redemption  to  gold 
alone  is  progressing  to  its  logical  and  inevitable  conclusion 
—  the  enrichment  of  the  favored  few  and  the  pauperization 
of  the  oppressed  many  —  with  the  inexorableness  of  fate. 

The  history  of  the  growth  of  a  people,  as  well  as  the 
history  of  the  growth  of  governments,  is  necessarily  a  his- 
tory of  the  growth  of  their  circulating  medium  ;  for  it  is  sus- 
ceptible of  demonstration  that  there  can  be  no  advanced 
civilization  without  great  diversity  of  occupation  and  future 


Financial  and  Economic  Errors  33 

contracts,  and  there  can  be  no  great  diversity  of  occupation 
and  settlement  of  future  contracts  witliout  the  exchange  of 
a  large  amount  of  products,  and  there  can  be  no  large  and 
varied  exchange  of  products  without  a  medium  of  exchange. 

There  are  three  antagonistic  classes  to  be  considered  in 
the  formation  of  a  financial  system. 

(i)  Those  who  are  neither  creditors  nor  debtors,  or.  if 
either,  are  persons  of  such  fairness  and  justice  that  they 
desire  to  maintain  the  stability  of  value  of  the  medium  of 
exchange,  and  also  desire  to  maintain  a  circulating  medium 
that  will  at  all  times  supply  the  demands  of  the  people  and 
remove  the  necessity  for  resorting  to  barter.  They  desire 
to  preserve  the  equities  in  the  settlement  of  future  contracts, 
and  are  always  ready  and  willing  to  increase  the  circulation 
to  meet  increase  of  business  and  increase  of  population,  and 
thereby  keep  the  mediums  of  payment  at  a  stable  value. 

(2)  Those  who  are  debtors,  and  who  wish  to  increase 
unduly  the  amount  of  the  circulating  medium  in  order  that 
they  may  be  enabled  the  more  easily  to  pay  their  debts. 
This  desire  of  the  debtors  is,  in  many  instances,  only  seem- 
ingly unfair  to  the  creditor,  and  received  more  considera- 
tion in  the  past  than  at  the  present  time. 

In  former  times  after  long-protracted  and  destructive 
wars,  service  in  battle,  destruction  of  property,  and  loss  of 
time,  the  citizens  became  unable  to  meet  their  contracts,  and 
a  natural  and  humane  equity  called  for  relief  on  the  part  of 
the  Government  they  had  served.  This  governmental  relief 
was  granted  in  various  ways,  sometimes  by  a  change  to  a 
substance  more  plentiful,  so  that  the  number  of  tokens 
could  be  increased,  and  consequently  the  value  of  the  circu- 
lating medium  be  decreased ;  by  abatement  of  part  of  the 
debt ;  by  debasing  the  coin,  i.  e.,  reducing  the  quantity  of 
the  metal  in  the  coin  so  that  the  same  quantity  of  metal,  by 

3 


34  The  Legal-Tender  Problem 

coining  a  larger  number  of  equal  value  with  the  coin 
reduced,  would  pay  a  larger  amount  of  the  debt. 

So  long  as  this  policy  was  pursued,  and  the  humanity 
of  Government  responded  to  the  distress  and  suffering  of 
the  people,  history  fails  to  show  a  single  instance  where  a 
nation  died ;  but  on  the  other  hand,  the  disappearance  of 
nations  from  the  map  of  the  world  can  be  shown  to  be  due 
to  a  failure  of  the  exercise  of  this  humanity,  and  a  decreas- 
ing circulating  currency. 

(3)  Those  who  are  creditors,  and  who  desire  to  reduce 
the  quantity  of  the  circulating  medium  in  order  that  they 
may  receive,  in  the  collection  of  their  debts,  a  greater  value 
than  was  contracted.  The  greed  for  accumulation  is  the 
sole  motive  by  which  this  class  is  actuated ;  no  idea  of  fair- 
ness, justness,  or  equity  ever  enters  their  souls. 

No  humanity,  nor  sympathy  on  the  part  of  the  creditors 
for  those  whose  ability  to  pay  has  been  lessened  by  patriotic 
conduct  in  fighting  the  battles  of  the  country,  has  ever 
prompted  the  abatement  of  one  jot  or  tittle  of  their  claims. 
On  the  contrary,  for  ages  past  the  people  have  been  taught 
that  debasing  the  coin,  even  in  their  own  interests  after  dis- 
astrous war,  was  a  process  by  which  the  rulers  robbed  them ; 
and  for  centuries  the  creditors  have  induced  the  people  to 
give  them  the  exclusive  right  to  the  value  of  legal  tender, 
and  have  so  framed  constitutions  that  it  was  impossible  to 
take  it  from  them  and  secure  relief  until  the  consent  of  the 
Government,  controlled  as  it  is  by  these  self-same  creditors, 
was  first  obtained. 

The  adoption  and  practise  of  the  first  two  ideas  —  based 
as  they  are  upon  the  desire  of  the  Government  to  provide  a 
medium  of  exchange  for  the  accommodation  of  the  people, 
and  grant  relief  in  extreme  cases  —  ensures  its  growth  to 
maturity  and  fullness  of  power,  when  all  the  people  are 


Financial  and  Economic  Errors  35 

prosperous    land    owners    and    on    terms    of    comparative 
equality. 

The  abandonment  of  the  idea  and  practise  that  a  medium 
of  exchange  is  solely  for  the  accommodation  of  the  people, 
and  the  adoption  of  the  theory  and  practise  that  it  is  to 
enhance  the  value  of  the  substance  used  to  make  the  me- 
diums, and  thereby  Increase  in  value  the  debt  due  the  cred- 
itor, and  only  secondarily  and  incidentally  accommodate  the 
people  in  the  exchange  of  products,  inevitably  leads  to  the 
undue  prosperity  of  the  creditor  and  the  destruction  of  the 
prosperity  of  all  others.  It  causes  the  owners  of  land  to 
decrease  in  numbers,  the  many  to  become  tenants,  and  all 
the  land  becomes  the  property  of  the  few.  It  destroys  all 
comparative  equality;  the  few  become  fabulously  wealthy, 
and  the  many,  workers  for  daily  existence. 

This  perversion  of  the  correct  theory,  this  abandonment 
of  the  idea  that  the  circulating  medium  should  be  issued 
solely  for  the  accommodation  of  the  people  in  creating  and 
exchanging  their  products,  this  inauguration  of  the  selfish 
and  inequitable  system  which  enhances  the  value  of  the 
circulating  medium,  and  consequently  increases  the  value 
of  all  debts,  has  invariably  been  brought  about  by  the  crafty, 
the   unscrupulous,  and   the   avaricious. 

The  fact  that  the  necessities  of  an  advancing  civiliza- 
tion made  barter  and  trade  an  impossibility,  and  a  circu- 
lating medium  indispensable :  that  the  intricacies  of  the 
exchange  of  products  generated  bills,  drafts,  notes,  balances, 
and  settlements ;  that  the  demand  for  banks  for  the  pur- 
poses of  exchange,  discount,  and  deposit  was  imperative ; 
that  the  mintage  of  coin  was  for  a  long  time  not  under  the 
control  of  Governments,  but  was  carried  on  by  the  indi- 
vidual, and  therefore  the  coins  were  so  various,  and  so  often 
changed,  that  only  a  few  experts  could  keep  posted  as  to 


36  The  Legal-Tender  Problem 

their  value, —  all  this  made  it  possible  for  the  money  brokers, 
usurers,  and  exchangers  to  alter  the  original  theory  of  a 
financial  system  until  they  developed  the  system  of  legalized 
robbery  that  prevails  to-day,  and  has  prevailed  throughout 
the   world   for  centuries. 

The  history  of  Rome  abundantly  illustrates  the  sound- 
ness of  the  foregoing  propositions.  From  its  infancy 
through  its  early  struggles  and  growth  to  the  period  of 
its  greatest  power  and  splendor,  its  progress  kept  pace  with 
the  observance  of  the  just  and  humane  conception  of  money, 
due  to  the  influence  of  the  first  two  classes  heretofore  men- 
tioned ;  while  its  decline,  beginning  with  the  domination  of 
the  third,  or  creditor,  class,  was  accelerated  to  its  fall  and 
ultimate  extinction  by  their  growing  and  insatiable  avarice 
and  lust  for  power. 

The  many  measures  adopted  for  the  relief  of  the  needy 
and  distressed  debtors  previous  to  the  year  600  a.  u.  c,  were 
offset  by  the  refusal  to  permit  anything  but  gold  and  silver 
to  be  used  as  money,  and  by  a  system  of  the  most  intoler-- 
able  oppression,  exercised  by  the  money  power  in  the  period 
intervening  between  that  date  and  the  accession  of  Caligula, 
embracing  two  and  a  quarter  centuries,  during  which  time 
the  efforts  of  the  people  to  protect  themselves  and  their  lib- 
erties resulted  in  a  destruction  of  life,  property,  morals,  and 
government  unparalleled  in  the  history  of  the   world. 

Referring  to  this  period  the  historian  Ferguson  writes : 
"  The  military  and  political  virtues  which  had  been  exerted 
in  forming  this  empire  having  finished  their  course,  a  gen- 
eral relaxation  ensued,  under  which  the  very  forms  which 
were  necessary  for  its  preservation  were  in  progress  of  time 
neglected.  As  the  spirit  which  gave  rise  to  those  forms  was 
gradually  spent,  human  nature  fell  in  a  retrograde  motion 
which  the  virtues  of  individuals  could  not  suspend ;  and  men. 


Financial  and  Economic  Errors  37 

in  the  application  of  their  faculties,  even  to  the  most  ordinary 
purpose  of  life,  suffered  a  slow  and  insensible,  but  almost 
continual,  decline. 

"  Human  nature  languished  for  some  time  under  a  sus- 
pension of  national  exertions,  and  the  monuments  of  former 
times  were,  at  last,  overwhelmed  by  one  general  irruption 
of  barbarism,  superstition,  and  ignorance.  The  effect  of 
this  irruption  constitutes  a  mighty  chasm  in  the  transition 
from  ancient  to  modern  history,  and  makes  it  difficult  to 
state  the  manners  and  transactions  of  the  one  in  a  way  to  be 
read  and  understood  by  those  whose  habits  and  ideas  are 
taken  entirely  from  the  other." 

A  more  philosophic  survey  of  Roman  history  might  have 
led  the  historian  to  see  that  the  advancement  and  develop- 
ment of  that  nation,  in  spite  of  its  wars,  its  internal  dissen- 
sion, and  their  attendant  proscription  and  changes  of  prop- 
erty from  class  to  class,  were  justly  attributable  to  the  fact 
that  the  supply  of  money  among  the  masses  constantly  kept 
pace  with  the  demands  of  a  healthy  progress. 

If  the  supply  of  copper  and  silver  became  insufficient  in 
quantity  to  facilitate  the  exchange  of  products,  or  to  enable 
the  people  to  discharge  their  debts,  as  was  the  case  during 
the  republic  when  those  metals  constituted  the  money,  the 
volume  of  currency  was  increased  by  debasing  the  coinage. 
After  the  discovery  in  large  quantities  of  both  gold  and  sil- 
ver, the  supply  for  a  time  exceeded  the  demand.  There- 
fore, notwithstanding  legislative  manipulation  by  which  this 
wealth  was  concentrated  in  the  hands  of  the  moneyed  class 
and  in  the  public  treasury,  it  was  nevertheless  not  only  suffi- 
cient to  support  the  privileged  classes  in  the  greatest  luxury, 
but  at  the  same  time  it  enabled  them,  in  addition  to  the 
marble  palaces  built  for  themselves,  to  provide  costly  struc- 
tures for  the  amusement  of  the  populace,  construct  a  system 


^89033 


38  The  Le^al-Tender  Problem 

of  public  works  of  extraordinary  magnificence  throughout 
Italy,  mobilize  armies,  and  donate  large  sums  to  the  soldiers. 

So  long  as  this  condition  of  the  currency  continued, 
Rome  advanced  in  greatness,  in  art,  literature,  science,  and 
public  improvements,  notwithstanding  the  injustice  of  the 
Government  toward  its  citizens,  its  favoritism  to  the  priv- 
ileged few,  its  invasion  by  hordes  of  barbarians,  its  change 
from  a  republic  to  an  empire,  the  insane  expenditure  of  its 
revenue  by  such  tyrants  as  Caligula  and  Nero,  its  degrada- 
tion in  morals  and  virtue ;  and  the  nation  only  entered  upon 
its  decline  and  proceeded  to  its  decay  as  gold  and  silver  dis- 
appeared, and  it  refused  to  give  legal-tender  value  to  any- 
thing else,  or  to  debase  the  coinage. 

"At  the  Christian  Era,  in  the  year  752  from  the  found- 
ing of  Rome,  the  metallic  money  of  tlie  Roman  Empire 
amounted  to  $1,800,000,000.  By  the  end  of  the  fifteenth 
century  it  had  shrunk  to  less  than  $200,000,000." — Report 
of  the  Silver  Commission  of  18 yd. 


II 

The  Bank  of  Venice 

There  was  one  exception  to  the  decadence  of  this  period, 
and  that  was  the  Rcpuhhc  of  Venice.  It  exempHfied  in  the 
management  of  the  Bank  of  Venice  from  1171  to  1797  the 
correct  theory  and  practical  development  of  a  pure  financial 
system,  and  demonstrates  the  correctness  of  the  views  herein 
advanced.  It  also  exposes  the  falsities  of  the  present  sys- 
tem, and  is  instrumental  in  discovering  the  growth  of  those 
abuses  that  have  been  engrafted  upon  the  system,  and  which 
tend  to  enrich  the  favored  few  at  the  expense  of  the  needy 
multitude. 

The  plan  of  the  bank  had  its  birth  in  the  direst  necessity 
of  the  nation,  and  the  benefits  conferred  were  so  keenly 
appreciated,  and  an  intelligent  spirit  of  humanity,  encour- 
aged by  widespread  commercial  prosperity,  amended  and 
improved  it  to  such  perfection,  that  the  wonder  is  that  all 
subsequent  systems  have  not  been  modeled  after  it. 

The  history  of  the  bank  is  meager  and  indefinite  for 
the  first  two  hundred  and  fifty  years ;  and  though  after  the 
lapse  of  that  period  there  is  a  fuller  and  more  definite  ac- 
count of  its  regulations  and  methods,  yet  there  are  many 
things  unexplained  and  left  to  conjecture.  It  appears  from 
the  more  trustworthy  accounts  of  the  bank  that  in  the  year 
1 171  a  Venetian  fleet  was  sent  to  avenge  an  outrage  per- 
petrated by  the  Grecian  emperor  upon  Venetian  merchants 
in  his  empire.  This  fleet  humbled  the  pride  of  the  Grecian 
emperor,  and  compelled  him  to  give  satisfaction.  The  con- 
test is  only  memorable  for  having  given  origin  to  the  Bank 

39 


40  The  Legal-Tender  Problem 

of  Venice.  For  the  republic  being  oppressed  by  the  charges 
of  war  against  the  emperor  of  the  East,  and  at  the  same 
time  involved  in  hostilities  with  the  emperor  of  the  West, 
after  having  exhausted  every  other  financial  resource,  was 
obliged  to  have  recourse  to  a  forced  loan  from  the  most 
opulent  citizens,  each  being  required  to  contribute  accord- 
ing to  his  ability. 

The  citizens  who  made  the  loans  were  given  credit  upon 
the  books  of  the  bank  for  the  amounts  advanced  by  them. 
These  credits  bore  four  per  cent  annual  interest,  and  were 
redeemable  at  some  future  time  in  coins.  Inasmuch  as  they 
were  interest-bearing  obligations  of  the  Government,  re- 
deemable in  specie,  they  were  then,  as  now,  a  safe  invest- 
ment. In  addition  to  being  a  safe  investment  they  were 
transferable  upon  the  books  of  the  bank  in  payments,  how- 
ever large  or  small,  with  almost  equal  facility  as  the  giving 
of  a  bank  check,  aijd  they  were  exempt  from  execution. 

Impressed  with  these  characteristics  they  were  first-class 
investments,  and  they  were  highly  efficient  as  mediums  of 
payment  for  the  trading  and  commercial  public.  The  Gov- 
ernment did  not  authorize  them  to  be  used  aB  mediums  of 
payment, —  in  other  words,  they  were  not  made  legal  ten- 
ders,—  but  it  appears  they  dropped  into  this  use  by  general 
agreement,  from  custom,  because  it  was  an  accommodation 
to  the  trading  public,  and  the  Government  was  pleased  to 
make  provision  for  such  use  of  them. 

The  experiment  with  the  bank  in  the  methods  practised 
from  1 171,  the  date  it  was  founded,  to  1423,  the  date  the 
credits  were  made  legal  tender,  demonstrated  that  the  debt 
of  the  Government  in  the  form  of  bank-credits,  when  used 
to  pay  debts,  was  worth  more  to  the  trading  and  commercial 
people  than  to  the  investors,  and  that  they  were  too  valuable 
in  use  to  be  held  as  investments,  since  they  commanded  a 
premium  over  gold  and  silver. 


The  Bank   of  Venice  41 

It  was  evident  that  the  loan  whicli  the  citizens  were 
forced  to  make,  and  take  in  exchange  therefor  a  credit  upon 
the  books  of  the  Bank  of  Venice,  bearing  four  per  cent  inter- 
est, had  been,  as  mediums  of  payment,  so  acceptably  and  so 
profitably  used,  that  it  had  ceased  to  be  regarded  as  a  debt. 
This  is  evident  from  the  fact  that  the  bank-credits  com- 
manded a  premium  of  thirty  per  cent  over  gold  and 'silver 
coins  because  they  were  used  as  mediums  of  exchange  and 
solvents  of  debt,  and  not  because  they  bore  interest  and  were 
payable  in  coin. 

The  fact  that  the  people  had  ceased  to  collect  the  interest 
on  the  bank-credits  or  present  them  for  payment,  but  on  the 
contrary  were  paying  a  premium  for  them  to  be  used  as 
mediums  of  payment,  showed  conclusively  that  the  bank- 
credits  were  too  vahiable  in  use  to  be  regarded  as  a  debt, 
or  held  as  an  investment. 

This  treatment  of  the  bank-credits  had  its  effect  upon 
the  officials  of  the  Government ;  and  when  it  was  finally  real- 
ized that  the  credits  were  so  valuable,  as  solvents  of  debt, 
that  they  were  no  longer  considered  or  treated  as  an  obli- 
gation of  the  Government,  the  conclusion  was  irresistible 
that  the  debt  IkuI  been  in  effect  liquidated. 

When  in  addition  to  this  the  officials  saw  that  the  cred- 
it^, as  solvents  of  debt,  were  commanding  a  premium  of 
thirty  per  cent,  they  very  wisely  came  to  the  conclusion  that 
it  was  best  for  the  Government,  and  for  the  people,  to  sell 
additional  bank-credits,  and  use  the  proceeds  to  defray  the 
expenses  of  the  Government. 

This  was  done  by  the  following  legislation  passed  in 
1423 :  "  That  all  bills  of  exchange  payable  in  Venice,  domes- 
tic as  well  as  foreign,  all  payments  in  gross  or  in  wholesale 
transactions  (unless  otherwise  stipulated),  should  be  pay- 
able at  the  bank." 


42  The  Legal-Tender  Proble 


m 


This  legislation  conferring  upon  the  bank-credits  the 
exclusive  privilege  of  paying  all  wholesale  transactions, 
made  them  legal  tenders,  and  it  was  decided  to  sell  addi- 
tional credits  to  the  trading  and  commercial  population  to 
be  used  indefinitely  as  solvents  of  debt. 

Under  the  legislation  of  1423,  it  was  understood  that 
the  debt  which  had  been  contracted  in  1171,  and  subsequent 
to  that  time,  as  shown  by  the  books  of  the  bank,  was  liqui- 
dated by  conferring  upon  the  outstanding  credits  the  quality 
of  legal  tender,  and  that  the  Government  would  in  the 
future  sell  additional  credits  for  certain  coins  that  were 
given  the  right  to  purchase  them.  It  was  also  understood 
that  the  republic  was  to  use  the  coins  to  defray  the  expenses 
of  the  Government,  and  that  the  value  of  the  bank-credits 
depended  entirely  upon  their  right  to  be  used  as  legal  ten- 
ders, for  they  were  in  no  sense  to  be  regarded  as  a  debt  of 
the  Government,  nor  was  the  bank  ever  to  redeem  them.  It 
was  understood  to  be  a  fair  exchange  of  legal-tender  value 
by  the  Government  to  the  citizens  for  an  equivalent  in  value 
of  coins. 

Thus  was  a  currency  provided  for  the  wholesale  busi- 
ness of  the  country.  The  decision  to  sell  additional  credits 
should,  in  a  short  while,  since  they  were  commanding  a 
premium,  have  caused  the  sale  of  enough  credits  to  have 
reduced  the  premium  to  par,  if  there  was  no  undue  scarcity 
of  the  coin  that  had  the  right  to  purchase  the  credits. 

The  history  of  the  bank,  however,  is  that  the  premium 
did  not  recede,  but  laws  were  passed  in  vain  to  restrain  the 
premium  from  advancing  higher  than  twenty  per  cent.  It  is 
unfortunate  that  the  history  of  the  bank  leaves  the  reason 
for  this  inability  to  control  the  premium  to  conjecture. 

Since  the  bank-credits  were  only  a  legal  tender  for  the 
payment  of  bills  of  exchange  and  in  wholesale  transactions, 


The  Bank  of  Venice  43 

it  was  incumbent  upon  the  Government  to  furnish  a  cur- 
rency for  the  retail  trade  and  the  smaller  transactions.  This 
was  done  by  the  organization  of  a  secondary,  or  co-ordinate, 
bank,  whereby  it  was  provided  that  if  any  one  deposited 
coins  in  it,  he  should  have  the  right  either  to  withdraw  the 
coin  or  use  his  credit  as  solvents  of  debt  by  transfer  upon 
the  books  of  the  bank  in  any  sum,  however  small. 

That  there  was  no  undue  scarcity  of  coins  is  evidenced 
by  the  fact  that  this  secondary,  or  co-ordinate,  bank  at  all 
times  had  a  large  amount  on  deposit,  and  more  than  once 
loaned  all  its  deposits  to  the  main  bank  without  producing 
any  effect  upon  its  working  operation,  so  great  was  the  con- 
fidence in  the  ability  of  the  main  bank  to  repay  the  loan  as 
soon  as  the  crisis  was  passed. 

It  is  evident,  since  the  main  bank  sold  its  credits  at  par, 
that  those  who  needed  bank-credits  would  have  bought  the 
coins  deposited  in  the  secondary  bank  to  be  exchanged  for 
the  credits  of  the  main  bank  if  they  could  have  been  used 
for  that  purpose.  Inasmuch  as  this  was  not  done,  notwith- 
standing the  credits  of  the  main  bank  commanded  a  premium 
of  thirty  per  cent,  it  is  evident  that  for  some  reason  they 
could  not  be  used  for  that  purpose. 

The  conjecture  is  that  only  a  certain  coin  issued  from 
the  mint  could  be  used  to  purchase  credits  of  the  main  bank, 
and  the  exchange  of  these  coins  for  legal-tender  credits 
must  have  been  limited  by  the  number  that  could  be  secured, 
since  the  Government  was  passing  laws  to  restrain  the  pre- 
mium to  twenty  per  cent.  This  coin  must  have  been  the 
ducat  and  its  nuiltiples  and  subdivisions,  since  their  names 
are  the  language  of  the  "money  of  account"  of  that  republic. 

There  is  reason  for  such  a  conjecture  in  the  fact  that 
foreign  coins  were  only  allowed  to  be  introduced  into  the 
city  of  \'enice  under  very  special  regulations.     Dealing  in 


44  The  Legal-Tender  Problem 

coins  by  private  or  pviblic  banks  was  prohibited  under  severe 
penalties,  and  failure  to  submit  all  coins  brought  into  the 
city  to  be  inspected  by  an  officer  of  the  mint  subjected  them 
to  forfeiture. 

It  is  reasonable  to  conclude  that  the  republic  in  its  wis- 
dom made  a  separation  of  the  currency  that  was  used  in  the 
retail  trade,  from  that  used  in  the  wholesale  trade  and  the 
payment  of  bills  of  exchange,  by  giving  to  the  ducat  the 
exclusive  right  to  purchase  credits  from  the  main  bank, 
and  the  foreign  coins  the  exclusive  right  of  deposit  in  the 
secondary  bank. 

It  is  evident,  if  the  coins  set  apart  to  the  use  of  the  one 
system  could  be  used  in  the  other,  that  all  of  the  coins  would 
have  been  appropriated  to  purchasing  the  credits  of  the 
main  bank,  and  none  have  been  left  to  the  retail  trade.  It 
appears,  therefore,  that  governmental  regulations  and 
supervisions,  under  severe  penalties,  were  necessary  to  keep 
the  coins  appropriated  to  the  one  use  or  the  other  from  being 
perverted  as  interest  and  greed  might  incline. 

The  statesmanship  of  that  republic  realized  that  the 
expansion  and  enlargement  of  the  wholesale  business  was 
entirely  dependent  upon  credits  and  their  increase ;  and  as 
the  prosperity  of  the  republic  increased  by  means  of  its 
transactions  in  gross  and  the  larger  ventures,  the  demand 
for  additional  issues  of  credit  also  increased,  and  caused  the 
premium  for  the  credits  of  the  main  bank  to  advance  as 
high  as  thirty  per  cent. 

It  appears  that  the  statesmanship  of  that  republic  real- 
ized that  the  wholesale,  or  large,  operations  are  carried  on, 
not  by  the  use  of  currency  or  money,  but  by  a  system  of 
bookkeeping,  or  the  "  credit  system,"  and  that  the  only  use 
it  has  for  coins  is  in  the  settlement  of  balances.  It  is  also 
apparent  that  it  was  realized  that  the  retail  trade  and  the 


The  Bank  of  Venice  45 

small  transactions  arc  carried  on  by  cash  and  credit,  or  per- 
sonal confidence,  and  that  as  this  credit  is  enlarged  or 
extended,  it  has  a  tendency  to  break  down  the  personal  con- 
fidence and  destroy  business. 

The  financiers  and  statesmen  of  that  republic  recognized 
the  irreconcilable  antagonism  that  exists  between  the  two 
methods  of  conducting  business  when  the  mediums  of  pay- 
ment in  each  were  dependent  upon  and  redeemable  in  the 
same  money ;  for  it  was  evident  that  as  the  wholesale  and 
large  business  prospered  under  enlarged  and  increasing 
credits,  the  retail  and  small  transactions  became  jeopardized 
as  personal  confidence  waned,  until  it  finally  grew  so  weak 
that  if  demand  for  the  payment  of  the  credits  in  coin  was 
made,  a  panic  would  ensue,  and  the  labor  and  accumulations 
of  years  would  be  destroyed. 

Appreciating  as  intensely  as  the  officials  must  have  done 
this  antagonism  between  the  two  systems,  and  that  it  was 
irreconcilable,  the  statesmanship  of  the  republic  saw  the 
necessity  of  completely  separating  the  mode  and  manner  of 
carrying  on  business  under  the  two  systems. 

This  could  only  be  accomplished  by  giving  to  each  a 
separate  and  distinct  currency,  or  mode  of  payment,  wherein 
the  mediums  of  payment  for  the  one  were  not  dependent 
u]-)on  or  in  any  sense  redeemable  in  the  other.  Therefore, 
after  two  hundred  and  fifty  years  of  experience  with  the 
bank-credits  as  mediums  of  payment  (adopted  to  protect 
itself  from  destruction  by  the  emperors  of  the  East  and  the 
West),  the  republic  w^as  enabled  to  put  into  practise  the  true 
theory  of  the  science  of  finance. 

Experimental  philosophy  had  taught  the  humane  states- 
manship of  the  republic  that  the  value  of  legal  tender  is  "  a 
property  right  "  held  in  trust  by  the  Government  for  the 
benefit  of  all  the  people,  and  that  it  should  be  sold  and  the 


46  The  Legal-Tender  Problem 

proceeds  used  to  defray  the  expenses  of  the  Government, 
and  save  to  that  extent  the  burden  of  taxation  which  bears 
so  heavily  upon  the  people. 

This  is  the  first  and  only  instance  in  the  history  of  the 
civilized  world  where  it  was  demonstrated  in  practise  that 
Government  credits,  when  made  sole  legal  tenders,  were  so 
"  valuable  in  use,"  as  solvents  of  debt,  that  they  commanded 
a  premium  over  gold  and  silver  coins  so  long  as  they  re- 
tained that  pre-eminent  quality ;  and  in  the  case  of  the  Bank 
of  Venice  they  retained  that  superior  value  until  1797,  when 
Napoleon  in  his  ignorant  cupidity  destroyed  the  republic 
and  the  bank  in  his  desire  to  secure  the  accumulation  of 
specie  that  he  supposed  was  held  in  the  bank  vaults. 

Colwell,  in  his  work  entitled  "  Ways  and  Means  of  Pay- 
ment," wherein  he  gives  the  history  of  the  Bank  of  Venice, 
in  discussing  its  methods  and  practise  (overlooking  the  ad- 
vantage that  was  bestowed  upon  the  bank-credits  by  giving 
the  people  the  right  to  use  them  as  mediums  of  payment, 
and  in  1423  making  them  sole  legal  tenders),  sums  up  his 
account  of  the  efficiency  of  the  institution  from  its  first 
organization  in  1171  to  1797  in  the  following:  "The  great 
feature  of  the  bank,  that  which  required  all  bills  of  exchange 
in  the  great  commercial  city  to  be  paid  at  the  bank,  appears 
at  first  blush  to  be  an  arbitrary  requirement,  if  not  a  most 
unjust  one.  It  was  giving  a  forced  currency  to  the  bank 
deposits,  consisting  merely  of  debts  due  by  the  Govern- 
ment." 

Colwell  seemed  to  be  unable  to  grasp  the  fact  that  after 
1423  the  bank-credits  were  no  longer  a  debt  due  by  the 
Government,  but  that  it  had  been  a  sale  of  legal-tender  value 
to  the  citizens  for  a  full  equivalent  in  gold  and  silver.  He 
states :  "  It  was  soon  found  to  work  so  well  in  practise  that 
it  brought  an  immense  accession  of  business  to  the  city,  and 


The  Bank  of  Venice  47 

to  tlic  bank.  .  .  .  Bills  of  exchange  became  of  increased 
use  in  all  the  neighboring  commerce,  and  a  vast  concentra- 
tion of  the  payments  took  place  at  Venice,  and  in  the  bank. 
.  .  .  The  money  brought  in  to  pay  bills  was  taken  by  the 
Government  as  it  was  received,  until  the  amount  of  the  de- 
posit was  adequate,  by  rapid  circulation,  to  the  current  pay- 
ment of  commerce.  This  made  the  bank  a  great  clearing- 
house, or  place  of  adjustment,  for  merchants  of  many  coun- 
tries. Venice  was  for  centuries  the  greatest  entrepot  of 
commerce  in  Europe,  if  not  in  all  the  world. 

"  The  chief  payments  or  liquidation  of  the  trade  were 
effected  at  the  bank.  .  .  .  The  bank  then  became  a  place  of 
liquidation ;  merchants  made  their  bills  payable  where  there 
was  the  greatest  circulation  of  means  to  pay  them,  and 
where  it  was  most  for  their  advantage  to  receive  payments. 
.  .  .  Those  who  had  occasion  for  gold  or  silver  purchased 
with  their  deposits  what  was  required ;  and  with  slight  ex- 
ceptions for  more  than  four  hundred  years  the  precious 
metals  were  at  a  discount,  compared  with  bank  funds.  .  .  . 
the  demand  for  that  which  would  pay  bills  of  exchange 
being  greater  than  gold  or  silver  for  any  special  use  to 
which  they  could  be  applied. 

"  The  great  mass  of  the  purchases  of  commerce  were 
made,  in  the  first  instance,  by  bills  of  exchange,  and  the 
great  operation  of  payments  consisted  in  liquidating  those 
bills.  The  demand  therefore  for  the  bank-credits  with 
which  they  were  paid  was  as  incessant  as  the  movements  of 
commerce  itself." 

It  is  well  for  the  financial  student  to  analyze  the  methods 
of  the  Bank  of  Venice  to  discover  those  principles  that  oper- 
ated to  change  a  debt,  when  used  as  mediums  of  payment, 
into  legal  tenders ;  that  made  it  possible  and  practicable  to 
sell  those  legal  tenders  for  gold  and  silver  which  was  used 


48  The  Legal-Tender  Problem 

by  the  Government  to  defray  its  expenses ;  that  made  those 
legal  tenders,  though  they  were  not  a  debt  of  the  Govern- 
ment, bore  no  interest,  and  were  not  redeemable,  so  "  valu- 
able in  use  "  that  for  centuries  they  commanded  a  premium 
of  twenty  per  cent,  and  more,  over  gold  and  silver  coins, 
and  saved  the  republic  of  Venice  throughout  the  life  of  the 
bank  (from  1171  to  1797)  from  the  visitation *of  such  evils 
as  a  redundancy  and  then  a  scarcity  of  money  has  period- 
ically inflicted  upon  all  subsequent  periods. 

The  methods,  practises,  growth,  and  evolution  of  the 
Bank  of  Venice,  when  understood,  are  highly  instrumental 
in  exposing  the  iniquity  and  injustice  of  the  present  system 
of  legalized  robbery ;  and  from  a  study  of  its  experience  and 
operation  a  system  can  be  formulated  that  will  be  in  har- 
monious accord  with  the  equity,  humanity,  and  Christianity 
that  ought  to  dominate  in  the  control  of  human  affairs. 

In  order  to  ascertain  what  application  has  been  made  by 
the  civilization  of  the  world  of  the  financial  principles  here- 
inbefore set  forth,  and  exhibit  to  some  extent  at  least  the 
cause  of  the  growth  of  the  perverting  abuses  that  have  been 
engrafted  upon  the  system  as  it  is  exploited  to-day,  the 
motives,  practises,  and  expedients  that  dominate  will  now 
be  investigated 


Ill 

Colonial  Finance 

It  is  unnecessary  to  consider  the  first  two  hundred 
years  of  our  financial  experience  further  than  to  state  that 
it  consisted  of  all  sorts  of  barter,  and  the  use  of  the  most 
primitive  methods  of  supplying  a  circulating  currency ;  that 
as  the  country  gradually  took  on  the  form  and  assumed  the 
habits  and  manners  of  an  advanced  civilization,  it  enlarged 
its  purchases  from  Europe. 

This  necessitated  the  use  on  the  part  of  the  colonists 
of  money  similar  to  the  money  of  Europe,  and  the  demand 
for  gold  and  silver  became  imperative.  This  demand  for 
coin  first  affected  Massachusetts,  because  it  was  the  most 
advanced  in  civilization  ;  and  in  1649  ^^^'^^  colony  was  forced 
to  demonetize  beads,  which,  by  an  enactment,  had  been  cur- 
rent money. 

So  great  was  the  demand  for  coin  at  that  time  in  the 
colony  of  Massachusetts  that  business  relations  with  the 
buccaneers  of  the  Spanish  main  were  encouraged,  in  order 
that  the  necessary  coin  might  be  secured.  The  demand 
for  coin  to  carry  on  the  increasing  trade  w^ith  Europe  was 
such  that  even  the  complete  surrender  of  Puritan  principles 
to  the  debasing  and  degrading  association  with  the  buc- 
caneers, did  not  secure  the  necessary  amount  for  that  and 
local  purposes,  and  in  1690  the  colony  was  forced  to  issue 
$35,000  of  paper  money. 

The  occasion  of  this  issue  was  the  return  of  an  unsuc- 
cessful expedition  against  the  French  in  Canada.  The  issue 
was  made  to  secure  money  with  which  to  pay  the  soldiers 
4  49 


50  The  Legal-Tender  Problem 

who  had  returned  in  a  destitute  condition,  without  any  spoil 
of  war,  and  were  clamorous  for  their  pay.  The  paper  money 
issued  for  local  purposes  was  redeemable  in  any  stock  that 
at  any  time  might  be  in  the  treasury,  and  for  twenty  years  it 
circulated  at  par  until  redeemed. — "History  of  the  Cur- 
rency," page  y. 

In  the  year  1703,  the  colony  of  Massachusetts  made  a 
second  issue  of  $75,000  of  paper  money,  which  was  made 
legal  tender  for  private  debts  so  that  it  could  be  used  for 
local  purposes. —  Id.,  page  7. 

In  17 16  an  issue  of  $750,000  of  paper  money  was  author- 
ized on  real  estate  security  for  ten  years  at  five  per  cent  per 
annum. 

In  the  year  1720  an  issue  of  $250,000  of  paper  was  made, 
a  total  in  thirty  years  of  $1,110,000  issued  by  a  young  and 
struggling  colony  for  local  purposes  so  that  the  coin  could 
be  free  to  be  used  in  trade  with  Europe. 

In  1748  the  paper  money  of  Massachusetts  amounted  to 
$11,000,000. —  Id.,  page  p. 

The  Bank  of  England,  which  had  been  organized  in  1691, 
and  upon  the  theory  that  its  notes  were  redeemable  in  coin, 
was  forced  to  suspend  payment  in  1723;  and  in  its  prepara- 
tion and  effort  to  resume,  the  coin  of  the  American  Colonies 
was  drawn  across  the  ocean  in  the  same  peremptory  man- 
ner that  the  East  drew  coin  out  of  the  South  and  West  in 
1893  to  keep  their  banks  from  suspending. 

The  colony  of  Pennsylvania  lost  all  of  its  coin,  notwith- 
standing the  passage  of  a  law  raising  its  value.  It  was 
therefore  forced  in  1723  to  issue  treasury  notes  to  supply 
the  demand  for  local  currency,  and  the  notes  were  made  a 
legal  tender,  redeemable  only  in  the  payment  of  taxes  to 
the  colony.  All  of  the  other  colonies  were  forced  for  sim- 
ilar reasons  to  issue  paper  money. 


Colonial  Finance  5i 

Between  1740  and  1750  the  demand  for  more  currency 
was  so  pressing  in  Massachusetts,  notwithstanding  its  pre- 
vious issues,  that  a  desperate  efifort  was  made  to  get  addi- 
tional currency  by  estabhshing  a  land  bank.  This  attempt 
was  defeated  by  the  governor,  who  claimed  that  it  was 
unlawful  and  pernicious,  contrary  to  the  action  of  Parlia- 
ment and  to  his  instructions.  The  people  of  Massachusetts 
were  beginning  to  feel  the  iron  hand  of  the  financiers  of 
England. 

In  1745,  with  some  little  assistance  from  the  other  col- 
onies, they  captured  Louisburg,  on  Cape  Breton,  from  the 
French.  The  English  Parliament  so  highly  approved  of 
this  exhibition  of  buccaneering  propensities  dominating 
Puritanic  professions,  that  it  decided  to  purchase  Louis- 
burg by  the  payment  of  a  large  sum  of  silver  and  copper 
to  the  colonics. —  "  History  of  the  Currency,"  page  p. 

Thereupon  Massachusetts  decided  to  go  to  a  sound- 
money  basis,  and  commenced  to  call  in  and  redeem  its  paper- 
money  issues.  This  action  of  Massachusetts  had  the  efifect 
of  transferring  a  large  portion  of  the  trade  of  the  other  col- 
onies to  itself,  and  consequently  depreciated  the  value  of  the 
paper  issues  of  the  other  colonies ;  for  in  the  struggle  to 
secure  coins  for  foreign  trade,  the  products  of  other  colonies 
and  the  trade  with  all  the  colonies  went  to  ^Massachusetts, 
instead  of  being  generally   distributed. 

It  was  most  disastrous  to  New  Hampshire  and  Rhode 
Island,  for  on  account  of  their  close  proximity  they  were 
the  heaviest  losers  of  their  trade.  This  loss  of  trade  was 
calculated  to  check  the  progress  of  the  other  colonies,  and 
to  that  extent  lessen  the  demand  for  the  use  of  their  paper 
money.  It  deprived  them  of  such  specie  as  the  trade  neces- 
sarily brought  with  it.  and  the  natural  consequence  was  that 
the  demand   for  the  specie  increased  and   the  demand   for 


52  The  Legal-Tender  Problem 

their  paper  issue  decreased.  Under  these  circumstances 
their  paper  money  depreciated  in  vahie  and  went  to  discount, 
while  specie  was  increasing  in  value',  and  all  of  it  going  to 
Massachusetts. 

This  was  Massachusetts'  first  taste  of  the  blood  of 
humanity,  drawn  by  financial  buccaneering  instead  of  the 
buccaneer's  sword,  and  it  was  so  efficient,  and  so  much 
more  in  accordance  with  their  professed  Puritanic  prin- 
ciples, that  they  have  held  to  it  ever  since. 

Appreciating  thoroughly  the  advantage  that  accrued  to 
the  colony  from  the  money  received  from  the  sale  of  Louis- 
burg,  and  indifferent  then  as  now  to  the  wail  of  suffering 
mankind,  if  the  outcry  is  caused  by  schemes  that  advance 
their  prosperity,  or  increase  their  wealth,  can  it  be  doubted 
that  the  avariciousness  of  Massachusetts  began  to  incite, 
or  at  least  agree  with,  the  fiananciers  of  England,  that  the 
colonies  should  not  be  permitted  to  issue  paper  money? 

By  the  use  and  enjoyment  of  a  full  supply  of  legal- 
tender  paper  money  from  1690  to  1748,  and  then  the  cap- 
ture and  sale  of  a  city  for  a  sufficient  sum  of  copper  and 
silver  to  enable  it  to  call  in  and  pay  its  paper  issues,  and 
the  use  of  both  kinds  of  money  as  it  slowly  proceeded  to  a 
specie  basis,  Massachusetts  succeeded  in  clearing  up  and 
bringing  to  a  high  degree  of  utility  its  sterile  lands  and 
rocky  wastes,  and  was  far  advanced  on  the  road  to  per- 
manent prosperity  and  great  riches. 

Understanding,  as  the  citizens  must  have,  the  disadvan- 
tages under  which  they  had  labored  in  their  trade  relations 
with  England  from  the  scarcity  of  coins,  and  realizing  that 
the  issues  of  paper  money  for  foreign  trade  was  the  chief 
cause  of  their  prosperity  and  success,  it  would  naturally  be 
supposed,  in  their  ])resent  comfort  and  mortgage  on  the 
future,  that  their  solicitude  for  the  younger,  weaker,  and 


Colonial  Finance  53 

struggling  colonies  would  have  prompted  them  to  take  no 
action  that  would  injure  or  be  in  the  least  detrimental  to 
their  sister  colonies.  On  the  contrary,  however,  they  at 
once  proceeded  to  use  the  proceeds  from  a  looted  city  to  go 
to  a  specie  basis,  conscious  that  in  so  doing  they  were 
applying  to  their  sister  colonies  similar  impositions  to  those 
England  had  so  long  applied  to  them,  in  the  hope  that  they 
would  mulch  from  the  colonies  a  full  equivalent  for  past 
losses. 

The  action  of  the  colony  of  Massachusetts  in  going  to  a 
specie  basis,  thereby  depriving  the  other  colonies  of  a  large 
part  of  their  trade,  enured  so  much  to  its  advantage  that 
by  1773  all  of  the  paper  issued  had  been  paid  and  retired. 
What  the  colony  of  Massachusetts  had  gained,  the  other 
colonies  had  in  great  part  lost,  for  the  effect  of  going  to  a 
specie  basis  had  been  to  deprive  the  other  colonies  of  much 
of  their  trade,  a  great  part  of  their  coin,  and  decrease  the 
value  of  their  paper  issues. 

The  colony  of  Massachusetts  had  been  aided  in  the  effort 
to  decrease  the  value  of  the  paper  issues  and  get  the  trade  of 
her  sister  colonies  by  an  act  of  the  English  Parliament  in 
1 75 1  prohibiting  the  colonies  from  issuing  paper  money. 
This  .prohibitive  act  seems  to  have  had  only  the  effect  that 
was  intended ;  viz.,  the  depreciation  of  the  value  of  the 
paper  issues  and  the  enlargement  of  the  volume  of  trade  of 
the  colony  of  Massachusetts ;  for  its  passage  did  not  deter 
the  colony  of  Virginia  from  making  its  first  issue  of  paper 
money  in  1755. 

The  colonies  —  even  Massachusetts,  which  did  not  reach 
a  specie  basis  until  1773  —  continued  to  use  the  paper  issues, 
and  in  some  cases  issued  more,  because  it  was  impossible 
to  secure  sufficient  coins  to  carry  on  the  business,  and  addi- 
tional currency  was  an  imperative  necessity.     This  refusal, 


54  The  Le^al-Tender  Problem 

or  failure,  to  comply  with  the  act  of  1751,  caused  the  Brit- 
ish board  of  trade  in  1764  to  protest  to  Parliament  against 
the  action  of  the  colonies  in  using  legal-tender  paper  money, 
for  the  stated  reason  that  "  every  medium  of  exchange 
should  have  an  intrinsic  value ;  "  and  all  colonial  acts  for 
issuing  paper  money  were  declared  void. — "History  of  the 
Currency,"  page  11. 

The  English  financier  understood  as  well  in  1764  as  he 
does  to-day,  that  the  more  people  who  used  the  precious 
metals,  the  greater  the  demand,  and  the  greater  the  demand, 
the  greater  their  value ;  therefore  there  was  no  intention 
of  permitting  the  colonies  to  make  their  local  currency  by 
issuing  paper  money,  and  to  that  extent  decrease  the  value 
of  their  gold  and  silver,  and  enhance  the  value  of  the  prod- 
ucts of  the  colonies,  which  the  English  were  buying. 

The  interests  of  the  financiers  and  the  members  of  the 
boards  of  trade  are  identical.  The  financiers  lose  in  the  loss 
of  the  value  of  their  metals ;  the  members  of  the  board  of 
trade,  though  they  may  secure  the  coins  from  the  finan- 
ciers at  less  value,  lose  this  profit,  and  more  besides,  when 
they  come  to  purchase  the  products  of  a  community  where 
there  is  a  full  supply  of  local  currency. 

Where  there  is  a  full  supply  of  local  currency,  the  pro- 
ducer is  master  of  the  situation,  and  in  the  sale  of  his  prod- 
ucts demands  a  price  that  will  cover  the  cost  of  production, 
and  give  him  a  fair  profit.  The  financiers  and  the  members 
of  the  board  of  trade  are  struggling  for  the  little  profit  that 
is  left;  and  inasmuch  as  the  financier  has  the  position  of 
advantage,  in  that  he  is  the  lender  of  both  money  and  credit 
to  the  board  of  trade  men,  he  has  ever  been  able  to  force 
them  to  do  his  bidding.  The  result  has  always  been  that 
the  financiers  have  compelled  the  boards  of  trade  to  join 
with  them  in  denying  the  right  to  a  people  to  get  money  by 


Colonial  Finance  5  5 

governmental  iss^^ies,  or  in  any  way  except  through  the 
agency  of  the  financiers.  It  is  due  to  this  fact  that  the 
British  board  of  trade  in  1764  was  protesting  so  vigorously 
to  Parliament  against  the  use  of  legal-tender  paper  money 
by  the  colonists. 

The  boards  of  trade  in  1764  were  actuated  by  the  same 
motives  and  were  impelled  by  the  same  force  as  those  of 
to-day  which  are  so  persistently  calling  for  the  demonetiza- 
tion of  silver  because  it  does  not  have  a  full  intrinsic  value. 

The  English  board  of  trade  and  the  financiers  of  the 
Bank  of  England,  incited  and  aided  by  the  colony  of  Mas- 
sachusetts, finally  succeeded  in  their  resolve  to  deprive  the 
colonies  of  the  use  of  paper  issues,  as  money;  for  "  in  1773 
the  English  Parliament  passed  an  act  which  took  away  from 
the  colonies  their  representative  money;  commanded  under 
penalties  that  no  paper  should  be  issued ;  that  all  such  issues 
should  cease  to  be  a  legal  tender,  or  receivable  in  the  pay- 
ment of  debts,  and  demanded  the  payment  of  all  taxes  in 
silver." 

This  was  the  first  contraction  of  currency  in  this  coun- 
try, and  was  as  drastic  in  its  effects  and  as  fatal  in  its  appli- 
cation as  any  that  have  succeeded,  and  they  have  been  many. 

The  chief  difficulty  with  the  colonies  had  been  to  secure 
a  sufficient  number  of  mediums  of  exchange  to  take  advan- 
tage of  the  opportunities  that  the  fertility  of  the  soil  and 
the  munificence  of  the  New  World  returned  to  enterprise 
and  labor.  The  condition  of  the  colonies  at  that  time  was 
due  in  great  part  to  the  fact  that  they  had  a  full  supply  of 
paper  money  for  local  purposes,  and  were  thereby  enabled 
to  use  such  coins  as  they  could  secure  in  purchasing  sup- 
plies from  Europe.  The  result  was  that  they  were  in  a 
flourishing  condition,  and  their  prosperity  was  increasing. 
So  soon,  however,  as  they  were  deprived  of  the  use  of  all 


5^  The  Legal-Tender  Proble 


m 


paper  money,  and  were  forced  to  conduct  business  and 
settle  debts  with  coins,  "  general  bankruptcy  ensued,  and 
business  was  paralyzed. 

"  Ruin  seized  upon  these  flourishing  colonies ;  and  the 
most  severe  distress  was  brought  home  to  every  interest 
and  family;  discontent  was  urged  on  to  desperation;  till  at 
last,  '  human  nature,'  as  Dr.  Johnson  phrases  it,  '  arose'  and 
asserted  its  rights.'  " 

It  is  well  to  adduce  just  here  some  testimony  as  to  the 
condition  and  prosperity  of  the  colonies  from  the  use  of 
legal-tender  paper  money. 

Thomas  Pownall,  M.  P.,  of  England,  who  had  acted  as 
governor  and  commander-in-chief  of  the  provinces,  in  a 
book  written  by  him  in  1768,  says  in  regard  to  the  colonial 
system  of  money :  "  I  will  venture  to  say  that  there  never 
was  a  wiser  and  better  measure,  never  one  better  calculated 
to  serve  the  use  of  an  increasing  country,  and  never  was  a 
measure  more  steadily  pursued  or  more  faithfully  executed 
for  forty  years  together,  than  the  loan  offices  in  Pennsyl- 
vania, formed  and  administered  by  the  Assembly  of  that 
province.  In  a  country  under  such  circumstances,  money 
lent  to  settlers  created  money.  Paper  money  thus  lent  upon 
interest  will  create  gold  and  silver  principal,  while  the  inter- 
est becomes  a  revenue  that  pays  the  charges  of  the  Govern- 
ment. This  currency  is  the  true  Pactolean  stream  which 
converts  all  into  gold  that  is  washed  by  it." 

In  1764  Dr.  Franklin,  writing  in  England  in  defense  of 
the  paper  money  of  the  colonies,  says :  "  On  the  whole,  no 
method  has  hitherto  been  framed  to  establish  a  medium  of 
credit  in  lieu  of  money  equal  in  all  its  advantages  to  bills  of 
credit,  founded  on  sufficient  taxes  for  discharging  them,  or 
land  securities  double  the  value  for  repaying  them  at  the  end 
of  the  term,  and  in  the  meantime  made  a  general  legal  ten- 


Colonial  Finance  57 

der.  The  experience  of  nearly  half  a  century  in  the  middle 
colonies  (New  York,  New  Jersey,  and  Pennsylvania)  has 
convinced  them  of  it  among  themselves,  by  the  great  in- 
crease of  their  settlements,  number  of  buildings,  improve- 
ments, agriculture,  shipping,  and  commerce." 

The  desperation  caused  by  the  destruction  of  colonial 
currency,  and  the  realization  that  the  colonies  would  soon 
lose  all  their  possessions  and  become  serfs  of  the  English 
owners  of  gold  and  silver,  very  naturally  brought  on  the 
Revolution. 

The  English  owners  of  gold  and  silver,  in  the  folly  of 
their  mad  avarice,  and  upon  the  false  assumption  that  if 
the  colony  of  Massachusetts  could  go  to  a  specie  basis  the 
other  colonies  could  also,  made  the  Revolution  a  certainty 
and  a  virtue  by  the  following  act  of  Parliament  passed  in 
1773:  "That  all  promissory  or  other  notes,  bills  of  ex- 
change, or  drafts,  or  undertakings  in  writing  being  nego- 
tiable or  transferable,  for  the  payment  of  any  sum  or  sums 
of  money  less  than  the  sum  of  twenty  shillings  in  the  whole, 
shall  be  and  the  same  are  hereby  declared  void  and  of  no 
effect."  By  a  subsequent  act  two  years  later  the  above  was 
made  far  more  effective  by  increasing  the  amount  to  five 
pounds.  The  effect  of  the  enactment  was  to  force  all  trans- 
actions of  whatsoever  nature,  under  five  dollars  in  amount, 
to  a  cash  basis,  and  to  that  extent  increase  the  demand  for 
gold  and  silver  coins.  This  denial  of  the  use  of  all  methods 
of  credit  in  trades  or  transactions  under  the  value  of  five 
dollars,  forced  all  the  people,  and  especially  the  poor,  to 
make  personal  and  daily  use  of  all  the  cash  they  could  com- 
mand, and  thus  made  it  more  difficult  to  secure  coin  to  pay 
for  foreign  products. 

The  result  was  that  those  who  needed  gold  and  silver 
were  forced  into  the  keenest  competition  with  the  people  to 


58  The  Legal-Tender  Problem 

secure  a  sufficiency  to  supply  their  demands.  This  forced 
additional  use  of  gold  and  silver  tended  to  unduly  enhance 
the  value  of  the  metals,  and  comparatively  depreciated  the 
value  of  all  products ;  and  it  was  more  than  Massachusetts 
could  tolerate,  though  it  was  on  a  specie  basis. 

A  sound-money  basis  of  her  own  selection,  that  w-as  giv- 
ing her  people  an  advantage  over  the  people  of  the  other 
colonies  in  drawing  to  her  marts  the  cream  of  all  the  trade, 
and  enriching  them  at  the  expense  of  the  people  of  the  other 
colonies,  was  highly  appreciated,  and  she  doubtless  approved 
of  the  wise  financial  policy  that  denied  the  right  to  the  col- 
onies to  use  paper  money.  But  when  Parliament  ordered 
that  all  transactions  under  five  dollars'  should  be  in  cash, 
and  it  was  realized  that  in  its  practical  application  it  was 
detrimental  to  her  people  and  their  interests,  and  was  trans- 
ferring to  the  people  of  England  all  the  profit  which  they 
had  expected  to  reap  from  their  sister  colonies,  Massa- 
chusetts emitted  the  first  growl  of  the  Revolution  at  English 
oppression  and  tyranny. 

The  colony  of  Massachusetts  had  made  her  arrange- 
ments for  a  sound-money  basis  under  a  system  of  import 
duties  that  had  long  prevailed,  and  during  the  time  she  had 
been  fighting  for  their  repeal  or  revision,  had  had  the  ben- 
efit of  paper  money.  Notwithstanding  the  disadvantage 
under  which  she  had  so  long  labored  she  was  enabled  finally 
to  command  enough  gold  and  silver  to  pay  all  import  dues 
and  carry  forward  her  growing  and  prosperous  business. 
That  her  sister  colonies  were  not  prepared  for  such  action, 
and  could  not  forego  the  use  of  paper  money  without  great 
loss  and  intense  suffering,  caused  her  no  hesitation ;  but  to 
the  contrary,  it  now  appears  that  the  consciousness  that 
she  would  reap  great  profit  from  the  distress  of  the  other 
colonies,  induced  her  to  hasten  to  a  specie  basis  before  she 


Colonial  Finance  59 

had  a  safe  margin  against  the  adverse  or  hostile  legislation 
of  Parliament.  For  the  history  of  the  commencement  of 
the  Revolution  is,  that  when  Parliament  placed  tea  upon 
the  list,  and  demanded  the  payment  of  the  duty  in  silver, 
this  act,  insignificant  enough  in  itself,  fired  the  Puritan  soul 
to  such  a  degree  of  indignation  that  the  tea  was  cast  into 
the  sea,  and  the  Revolution  was  on. 

The  truth  of  the  matter  is  that  the  act  requiring  all 
transactions  under  five  dollars  to  be  in  cash,  had  more  than 
exhausted  Massachusetts'  margin  of  protection  in  going  to 
a  specie  basis,  and  her  people,  in  the  scarcity  of  money  that 
was  becoming  more  and  more  apparent  in  the  conduct  of 
their  business,  were  growing  revolutionary. 

Appreciating  fully  that  every  dollar  paid  on  import  dues 
deprived  them  of  that  much  of  the  specie  with  which  they 
were  carrying  on  their  business,  they  were  petitioning  His 
Most  Gracious  Majesty  George  the  Third,  to  relieve  them 
by  repealing  some  of  the  import  dues,  while  the  patriots 
were  preparing  for  war,  knowing  too  well  that  the  repeal 
of  a  part  of  the  import  dues  that  would  bring  relief  to  specie- 
paying  Massachusetts  would  not  avail  them. 

When,  however,  instead  of  repealing  part  of  the  import 
dues,  tea  was  added  to  the  list,  and  payment  of  dues  on  the 
same  in  silver  was  demanded,  the  colony  of  Massachusetts 
realized  that  the  indifiference  and  inhumanity  she  had  pre- 
pared to  exercise  toward  her  sister  colonies  was  to  be 
visited  upon  her  as  well  as  the  other  colonies,  by  English 
greed,  she  decided  to  take  her  chance  in  a  Revolution,  and 
free  herself  and  her  prey  from  the  avarice  of  the  unnatural 
mother,  and  right  well  did  she  succeed,  as  every  line  and 
page  of  our  financial  history  only  too  well  attests. 

The  people  of  IMassachusetts  made  good  soldiers  in  the 
war  of  the  Revolution,   for  they   fought   for  the  right  to 


6o  The  Legal-Tender  Proble 


m 


despoil  and  loot  their  sister  colonies,  by  any  and  all  schemes 
their  avarice  and  ingenuity  could  devise,  without  future 
interference  on  the  part  of  England's  greed.  This  is  clearly 
evidenced  in  the  influence  of  that  colony  over  the  Conti- 
nental Congress  in  its  method  of  procedure  for  the  issuance 
of  paper  money  to  carry  on  the  Revolution,  in  the  conduct 
of  its  representatives  in  framing  the  financial  portion  of  the 
Constitution  of  the  United  States,  and  in  the  action  of  her 
public  men  in  Congress  and  official  station  throughout  the 
entire  financial  legislation  of  the  country. 

The  Southern,  the  Middle,  and  the  Western  States,  in 
the  century  and  a  quarter  of  existence  as  a  nation,  have 
needed  much  money  to  open  up  and  settle  those  vast  terri- 
tories, but  instead  of  generously  permitting  them  or  the 
Government  to  issue  paper  money  for  that  purpose  to  meet 
local  demands,  as  Massachusetts  and  the  other  States  did, 
they  have  been  forced  to  borrow  the  sorely  needed  money 
from  the  East,  with  the  inevitable  result  of  making:  the 
East  wealthier  than  the  South  and  the  West  combined; 
and  it  is  now,  through  the  instrumentality  of  the  system, 
absorbing  in  great  part  their  annual  production. 

After  the  passage  of  the  Act  of  Parliament  depriving 
the  paper  money  of  the  colonies  of  legal  tender,  and  forbid- 
ding any  further  issues,  and  the  acts  forcing  the  colonists 
to  use  cash  in  all  transactions  under  five  dollars  and  to  pay 
the  tax  on  tea  in  silver,  it  was  realized  that  they  must  either 
fight  for  freedom  from  such  oppression  or  become  serfs  to 
English  landlordism. 


IV 

The  JVar  for  Independence 

TiiEREuroN    a   general   Congress    was   organized,    com 
posed  of  delegates  from  each  of  the  colonies,  to  petition  for 
the  restoration  of  their  rights,  and  to  prepare  for  war  if 
their  demands  ^vere  not  granted. 

The  general  Congress,  as  formed  and  empowered,  was 
merely  an  advisory  council  to  the  different  colonies.  It 
possessed  no  power  to  impose  or  collect  taxes  or  duties ;  it 
had  no  authority  to  emit  bills  of  credit  and  make  them  a 
legal  tender ;  it  had  no  right  to  coin  money  or  issue  bonds, 
nor  could  it  receive  in  the  payment  of  taxes,  or  in  any  man- 
ner redeem  the  paper  issues  it  might  emit. 

Nevertheless,  in  response  to  a  suggestion  embodied  in  a 
letter  from  Joseph  Warren,  president  of  the  Provincial 
Congress  of  Massachusetts  Bay,  Congress  on  June  22,  1775, 
passed  the  following  resolutions  :  — 

"Resolved,  That  a  sum  not  exceeding  two  millions  of 
Spanish  milled  dollars  be  emitted  by  the  Congress  in  bills 
of  credit,  for  the  defense  of  America. 

"  Resolved,  That  the  twelve  Confederate  Colonies  be 
pledged  for  the  redemption  of  the  bills  of  credit  now 
directed  to  be  emitted." 

On  June  23,  1775,  Congress  passed  the  following  reso- 
lutions :  — 

"Resolved,  That  the  number  and  denominations  of  the 
bills  to  be  emitted  be  as  follows :  49,000  each  of  bills  of  8, 
7,  6,  5,  4,  3,  2,  and  i;  and  11,800  bills  of  $20;  in  all 
$2,000,000." 

61 


62  The  Legal-Tender  Problem 

"  Resolved,  That  the  form  of  the  bills  be  as  follows : 

No )   Continental  Currency.      ( Dollars, 

This  bill  entitles  the  bearer  to  receive   Spanish 

milled  dollars,  or  the  value  thereof  in  gold  and  silver,  ac- 
cording- to  the  resolutions  of  the  Congress,  held  at  Phila- 
delphia, on  the  loth  day  of  May,  a.  d.  1775." — "Elliott's 
Debates,"  Vol.  i,  page  48. 

The  notes,  emitted  by  the  Continental  Congress  one 
year  before  the  Declaration  of  Independence,  were  not 
receivable  for  taxes  or  dues,  were  not  legal  tenders,  were 
not  to  be  paid  or  redeemed  by  Congress,  but  were  simply 
thrown  on  the  troubled  and  oppressed  country  in  the  hope 
that  they  would  be  received  and  used  by  a  patriotic  people 
without  question  as  to  whether  Congress  had  the  power  to 
make  them  obligations  of  the  different  colonies. 

It  seems,  in  accordance  with  their  calculations,  that 
they  w^ere  received  without  question,  for  on  July  25,  suc- 
ceeding, another  act  was  passed  authorizing  the  issue  of 
another  $1,000,000  of  these  notes;  and  on  November  29 
of  the  same  year,  a  third  act  was  passed  providing  for  the 
issuance  of  $3,000,000  more,  a  total  of  $6,000,000  in  the 
year  1775. —  Id.,  Vol.   i,  page  4p. 

In  addition  to  the  notes  issued  by  Congress,  the  colonies 
were  also  issuing  notes ;  and  by  December  26  some  doubt 
must  have  arisen,  either  as  to  the  ability  of  the  colonies 
to  redeem  the  share  apportioned  to  them  or  of  the  power 
of  Congress  to  bind  the  colonies,  for  on  that  date  Congress 
passed  an  act  that  each  colony  should  provide  ways  and 
means  to  retire  the  portion  of  the  issue  accredited  to  it. 

The  act  sets  out  that  each  colony  was  to  commence 
redeeming  the  notes  in  1778,  and  complete  the  retirement 
of  all  issues  charged  to  it  by  1783,  and  it  was  to  be  done 
in  the   following  manner :   the  colonies  were  to  impose  a 


The  War  for  Independence  63 

special  tax  to  take  up  the  notes,  but  they  were  not  to  be 
received  for  any  other  tax.  If,  in  the  payment  of  this  spe- 
cial tax,  coin  should  be  used  instead  of  notes,  the  coin  was 
to  be  used  in  the  purchase  of  the  notes  if  they  could  be  had. 
If  the  notes  could  not  be  secured  in  exchange  for  coin,  then 
the  treasurer  of  the  colony  must  turn  over  to  the  national 
treasury  both  the  coins  and  notes  received  in  payment  of 
the  special  tax.  The  notes  so  turned  over  were  to  be  de- 
stroyed, and  the  coins  used  to  redeem  the  outstanding  notes. 

This  was  virtually  a  scheme  to  carry  on  the  war  by 
direct  taxation,  for  as  fast  as  the  notes  were  issued  they 
were  to  be  taken  up  and  retired.  Therefore  they  were  not 
given  any  of  the  characteristics  or  qualities  of  money.  To 
have  done  so  would  have  defeated  the  iniquitous  intention, 
and  left  them  in  the  channels  of  circulation  to  compete  with 
gold  and  silver. 

If  the  colonies  had  complied  with  the  provisions  of  the 
act,  and  retired  the  notes  by  special  tax,  the  expenses  of  the 
war  would  have  been  paid  as  it  progressed,  and  in  a  short 
time  after  its  termination  none  of  the  issues  would  have  been 
in  circulation.  If  the  colonies  should  fail  to  pay  the  notes 
on  the  ground  that  Congress  had  no  power  to  bind  them  for 
their  payment,  and  the  exigencies  of  the  war  should  require 
the  issue  of  a  large  quantity,  the  holders  of  the  notes,  at  the 
termination  of  the  struggle,  would  be  the  losers,  for  there 
would  be  no  valid  obligation  on  either  the  colonies  or  the 
nations  that  could  be  enforced. 

Congress  knew  that  it  had  no  power  to  bind  the  colonies 
for  the  payment  of  the  notes,  and  the  colonies  eventually 
refused  to  recognize  or  assume  the  obligation  imposed  upon 
them.  It  now  appears  to  have  been  a  clever  financial 
scheme  to  euchre  the  patriotism  of  the  country  into  fighting 
the  war  of  independence  without  in  the  least  affecting  the 


64  The  Le^al-Tender  Problem 

sound-money  basis  that  Massachusetts  had  secured,  and 
leaving  it  intact  in  a  short  while  after  the  termination  of 
the   war. 

The  notes,  as  issued,  were  a  clever  temporary  war  sub- 
stitute for  money ;  made  the  more  tempting  by  the  promise 
to  pay  in  Spanish  milled  dollars,  addressed  to  the  ignorant 
and  patriotic  credulity  of  the  people.  If  the  notes  were 
retired  by  the  levy  of  the  special  tax  or  repudiated  after 
the  war,  the  result  was  the  same ;  the  specie  basis  was  pre- 
served. 

The  scheme  was  assisted  by  the  act  of  Congress  passed 
January  ii,  1776,  that  all  persons  refusing  to  receive  the 
Continental  bills  of  credit  in  payment,  or  who  should  ob- 
struct or  discourage  the  currency  circulation,  be  denounced, 
published,  and  treated  as  enemies  of  the  country,  and  be 
precluded  from  all  trade  and  intercourse  with  the  inhabitants 
of  the  colonies ;  but  they  were  not  given  the  legal-tender 
quality. 

Additional  issues  were  now  made,  and  on  the  17th  of 
February,  1776,  the  sum  of  $4,000,000  in  bills  of  credit  were 
emitted ;  and  on  the  6th  of  May  it  was  resolved  that  ten 
millions  of  dollars  be  raised  for  the  purpose  of  carrying  on 
the  war  for  the  year  1776. 

On  the  9th  of  May  a  resolution  passed  for  the  emission 
of  five  millions  of  dollars,  in  bills  of  credit,  in  part  of  the 
ten  millions  voted  for  the  service  of  the  year  1776,  making 
a  total  of  eleven  millions  issued  before  the  Declaration  of 
Independence. — "Elliott's  Debates,"   Vol.   i,  pages  52,  55. 

After  this  time  the  issues  were  enlarged  to  $241,552,280, 
at  the  close  of  November  29,  1779,  according  to  the  state- 
ment of  Mr.  Poor,  on  page  457  of  "  Money,  Its  Laws,  etc." 

The  warfare  made  upon  the  bills  of  credit  by  that  class 
who  were  advocates  of  gold  and  silver,  aided  by  the  knowl- 


The  II  ar  for  Independence  65 

edge  that  they  were  not  binding  obligations  upon  either 
the  colonies  or  the  nation,  and  that  their  payment  or 
redemption  by  either  would  be  resisted  by  the  financiers,  in 
and  out  of  office,  was  highly  instrumental  in  breaking  down 
the  faith  of  the  people  in  them,  and  they  receded  in  value 
from  par  at  the  date  of  the  Declaration  of  Independence, 
to  two  for  one  at  the  close  of  1776,  and  to  eight  for  one  at 
the  close  of   1778. 

Congress  therefore,  on  the  26th  of  December,  1778, 
passed  an  act  providing  that  new  notes  were  to  be  exchanged 
for  old,  and  that  the  holders  of  the  old  notes  should  be 
allowed  interest  to  be  paid  in  new  notes ;  but  the  new 
notes  were  not  given  the  legal-tender  quality.  No  issues 
were  made  under  this  act,  nor  were  any  new  notes  issued 
to  take  up  the  old  notes  until  1780.  The  legislative  cajolery 
and  the  patriotism  of  the  people  induced  them  to  accept  and 
use  the  notes  until  the  close  of  1779. 

On  the  9th  of  July,  1778,  the  Articles  of  Confederation 
superseding  the  Continental  Congress  were  adopted. 

Whereas  the  Continental  Congress  had  no  powers,  and 
was  merely  an  advisory  council  to  the  colonies,  organized 
for  the  double  purpose  of  securing  peace  with  England,  or 
if  that  were  not  accomplished,  to  make  preparations  for 
war,  the  Articles  of  Confederation  were  the  formation  of  a 
sovereign  nation  coming  into  existence  under  great  diffi- 
culties. The  declaration  of  the  intention  to  throw  off  the 
swaddling  clothes  of  a  colony  and  assume  the  vestments 
of  a  nation,  necessitated  a  reorganization  for  fuller  and 
more  power  to  meet  the  exigencies  of  the  hour. 

Under  Article  8  of  said  Confederation  is  found  the  fol- 
lowing :  — 

"All  charges  of  war,  and  all  other  expenses  that  shall  be 
incurred  for  common  defense  or  general  welfare,  and  al- 
5 


66  The  Legal-Tender  Problem 

lowed  by  the  United  States  in  Congress  assembled,  shall  be 
defrayed  out  of  the  common  treasury,  which  shall  be  sup- 
plied by  the  several  States  in  proportion  to  the  value  of 
any  land,  within  each   State.   .   .   . 

"  The  taxes  for  paying  that  proportion  shall  be  laid  and 
levied  by  the  authority  and  direction  of  the  Legislature  of 
the  several  States,  within  the  time  agreed  upon  by  the 
United  States  in  Congress   assembled." 

Under  Article  9  the  following  powers  are  set  forth :  — 

"  The  United  States  in  Congress  assembled  shall  have 
authority  ...  to  ascertain  the  necessary  sums  of  money 
to  be  raised  for  the  service  of  the  United  States,  and  to 
appropriate  and  apply  the  same  for  defraying  public  ex- 
penses ;  to  borrow  money  or  emit  bills  of  credit  on  the  credit 
of  the  United  States;  transmitting  every  half  a  year,  to  the 
respective  States,  an  account  of  the  sums  of  money  so  bor- 
rowed  or   emitted." 

Article  12 :  "All  bills  of  credit  emitted,  moneys  bor- 
rowed, and  debts  contracted,  by  or  under  the  authority  of 
Congress,  before  the  assembling  of  the  United  States  in 
pursuance  of  the  present  Confederation,  shall  be  deemed 
and  considered  as  a  charge  against  the  United  States,  for 
the  payment  and  satisfaction  whereof  the  said  United  States, 
and  the  public  faith,  are  hereby  solemnly  pledged." 

The  amount  of  the  notes  issued  by  the  Continental 
Congress  before  the  adoption  of  the  Articles  of  Confedera- 
tion was  $52,500,000. 

Notwithstanding  the  Articles  of  Confederation  gave 
Congress  the  power  to  emit  bills  of  credit, —  impliedly  con- 
ferring the  power  to  make  them  a  legal  tender, —  and  obli- 
gated the  United  States  to  pay  them  and  all  previous  issues, 
no  change  was  made  in  the  method  of  their  issue,  but  the 
subsequent  issues  were  emitted  just  as  the  Continental  notes 
had  been. 


The  War  for  Independence  ^7 

This  neglect,  or  refusal,  on  the  part  of  Congress,  after 
the  Articles  of  Confederation  were  adopted,  to  issue  the 
bills  of  credit  as  legal  tenders  in  accordance  with  the  power 
conferred  upon  it,  and  its.  persistence  in  issuing  them,  as 
was  done  under  the  uncertain  and  irresponsible  power  of 
the  Continental  Congress,  aroused  the  suspicion  of  the  peo- 
ple as  to  the  bona  fides  of  its  intention ;  and  the  report  that 
gained  circulation  in  the  year  1779  that  Congress  never 
intended  to  redeem  them,  when  coupled  with  the  fact  that 
the  colonies,  as  States,  were  not  complying  with  the  order 
of  Congress  to  commence  their  retirement,  reduced  their 
value  from  8  to  i  at  the  close  of  1778  to  40  to  i  at  the  close 
of  1779. 

To  meet  this  charge,  that  in  the  light  of  subsequent 
events  seems  to  have  been  true,  and  to  sustain  the  value  of 
the  notes.  Congress  on  December  28,  1779,  dented  the 
charge,  and  passed  an  act  pledging  the  faith  of  the  United 
States  for  the  payment  of  the  bills,  but  it  failed  to  make 
them  legal  tenders. 

On  December  31,  1779,  it  endeavored  to  carry  out  its 
pledge  of  good  faith  in  the  following  act,  ordering  that  the 
bills  of  credit  issued  before  the  Declaration  of  Independence, 
and  charged  to  the  different  colonies,  be  paid  by  them,  and 
that  the  time  for  paying  the  balance  of  the  $241,552,280  be 
extended  to  eighteen  years  instead  of  four,  heretofore 
granted,  and  that  the  amount  of  each  annual  payment  be 
limited  to  $6,000,000,  commencing  in  1780. 

This  action  of  Congress  tended  to  depreciate,  instead  of 
sustain,  the  value  of  the  notes,  for  it  was  becoming  evident 
that  its  pledge  that  it  would  pay  the  notes  was  illusive, 
and  had  been  merged  in  its  order  to  the  colonies  to  pay 
them  in  eighteen  years. 

It  was  known  that  there  was  a  powerful  hard-money 


68  The  Legal-Tender  Problem 

party  in  Congress ;  that  it  had  forced  the  notes  to  be  issued 
payable  in  silver;  that  it  had  refused  to  allow  them  to  be 
made  a  legal  tender,  because  they  did  not  intend  that  they 
should  come  in  competition  with  gold  and  silver. 

It  was  further  known  that  if  the  notes  were  retired  by 
the  special  tax,  as  was  first  intended,  the  war  would  have 
been  sustained  by  a  direct  tax ;  and  it  had  long  been  sus- 
pected that  the  notes  were  originally  issued  in  such  a  way 
that  if  they  were  not  retired  by  the  special  tax,  they  would 
never  be  paid.  This  issue  was  as  well  defined,  as  serious, 
and  was  fought  as  bitterly,  as  the  war  of  the  Revolution. 
It  is  little  cause  of  wonder,  then,  that  by  the  close  of  1779 
they  were  only  worth  40  for  $1.00  in  silver. 

The  party  of  promise  in  Congress  was  a  good  majority, 
as  is  evident  from  the  many  assurances  given  that  all  bills 
of  credit*  emitted  would  be  paid.  The  party  of  performance 
was  a  small  minority,  and  Congress  could  take  no  action 
in  keeping  its  pledges,  until  it  was  to  the  interest  of  the 
party  of  promise  to  do  so. 

The  war  was  at  its  lowest  ebb  in  1780;  money  was 
scarce,  and  it  was  almost  impossible  to  borrow  any  from 
Europe.  A  circulating  currency  was  indispensably  neces- 
sary to  carry  forward  the  war,  and  with  the  past  issue  of 
notes  depreciated  in  value  to  two  and  one-half  cents  on  the 
dollar,  and  growing  more  valueless  each  month,  it  was  evi- 
dent that  they  were  no  longer  of  any  use,  and  that  it  was 
folly  to  issue  more.  Some  arrangements  had  to  be  made 
to  secure  a  circulating  currency,  or  to  give  value  to  the 
notes  outstanding,  or  the  war  would  have  to  close,  and  the 
colonies  again  become  dependencies  of  England. 

The  contemplation  of  such  an  idea,  and  the  fear  that 
English  greed  would  be  far  more  exacting  than  in  1775, 
forced  the  hard-money  party,  or  party  of  promise,  in  Con- 


Tlie  J  Far  for  Independence  69 

gress  to  agree  that  the  following  liheral  (?)  legislation 
might  be  passed. 

By  a  resolution  "  Congress  authorized  that  silver  be 
received  at  the  rate  of  i  to  40 ;  "  that  all  bills  of  credit  turned 
into  the  treasury  at  this  rate  should  be  destroyed ;  that  new 
certificates  bearing  five  per  cent  interest,  not  to  exceed  in 
nominal  value  one  twentieth  of  the  bills  thus  destroyed,  were 
to  be  issued  in  their  stead ;  that  funds  were  to  be  established 
by  the  individual  States  for  the  redemption  of  these  new 
certificates,  and  the  faith  of  the  United  States  was  again 
pledged  as  an  additional   security. 

These  certificates  were  to  be  in  the  following  form:  — 

"  The  possessor  shall  be  paid   Spanish 

milled  dollars  by  the  31st  of  December,  1786,  with  interest, 
in  like  money  at  the  rate  of  five  per  cent  per  annum,  by  the 
State  of ,  according  to  an  act  of  the  Legis- 
lature of  the  State  of ,  the day  of 

,  1780." 

The  endorsement  of  Congress  was :  — 

"  The  United  States  insures  the  payment  of  the  within 
bill,  and  will  draw  bills  of  exchange,  annually,  if  demanded, 
according  to  a  resolution  of  Congress  of  the  i8th  of  IMarch, 
1780;"  but  it  is  most  significant  they  were  not  made  legal 
tenders. — "History  of  the  Currency,"  page  ij. 

In  this  manner  the  many  promises  heretofore  made  by 
Congress  to  redeem  or  to  pay  the  $241,552,280  bills  of 
credit,  were  to  be  carried  out.  It  was  to  be  the  funding  of 
this  sum  into  the  fortieth  part ;  viz..  $6,038,807,  bearing  five 
per  cent  interest  annually,  and  no  better  secured  than  the 
$241,000,000.  It  was  hoped  that  the  five  per  cent  interest 
would  prove  inviting  enough  to  induce  all  of  the  holders  of 
the  $241,000,000  of  the  bills  of  credit  to  surrender  them  for 
cancelation  in  exchange  for  the  new  certificates. 


70  The  Le^al-Tender  Problem 

If  this  should  be  done,  it  is  evident  that  Congress  thought 
it  could,  with  the  $6,000,000  additional  issues  provided  by 
the  act,  carry  on  the  war ;  and  it  was  provided  that  in  the 
issuance  of  these  new  certificates  six  tenths  of  the  issues 
were  to  be  delivered  to  the  States  in  due  proportions,  and 
four  tenths  were  to  be  reserved  for  the  use  of  Congress. 

This  manifestation  of  the  influence  of  the  hard-money 
party  over  Congress,  verifying  the  general  report  that  it 
never  intended  to  pay  the  bills  of  credit,  must  have  disgusted 
the  people,  for  only  a  few  availed  themselves  of  the  privilege. 

This  complete  distrust  of  Congress  was  more  effectually 
shown  in  the  fact  that  such  new  emissions  as  were  made 
soon  sank  to  one  eighth  of  their  nominal  value,  notwith- 
standing they  bore  five  per  cent  annual  interest,  so  that  the 
holder  of  $320  in  Continental  paper  money  who  received 
$8  in  the  new  certificates,  had  only  the  value  of  $1  in  silver. 
— "History  of  the  Currency/'  page  15.  Notwithstanding 
the  Articles  of  Confederation  gave  Congress  the  power  to 
emit  bills  of  credit,  and  therefore  the  implied  right  to  make 
them  a  full  legal  tender,  it  is  noticeable  that  it  was  not 
done. 

This  persistence  in  Congress  in  and  under  every  neces- 
sity for  a  circulating  medium,  when  it  was  known  that  there 
was  not  enough  gold  and  silver  to  supply  the  demand,  not 
to  give  the  quality  of  legal  tender  to  bills  of  credit,  is  unde- 
niable evidence  that  the  sound-money  men  kept  in  mind  the 
reason  that  forced  specie-basis  Massachusetts  to  commence 
the  war. 

There  has  been  no  similar  manifestation  of  such  an 
implacable  and  deadly  purpose,  under  such  embarrassments 
and  tribulations,  in  the  history  of  the  world,  and  no  such 
gain  and  profit  has  ever  waited  upon  such  fixity  of  purpose 
as  has  accrued  to  capitalists  of  the  East  and  their  posterity. 


The  War  for  Independence  7^ 

Tlie  depreciation  in  value  of  the  Continental  currency, 
and  the  equal  reduction  in  value  of  the  new  certificates, 
was  due,  in  addition  to  the  distrust  of  the  intention  of  the 
hard-money  party  to  ever  allow  either  to  be  paid,  to  the  fact 
that  large  issues,  independent  of  funding,  were  being  made, 
both  of  Continental  bills  and  the  new  certificates. 

In  1780  there  was  issued  of  the  old  emissions  $82,908,- 
320.47,  and  of  the  new  emissions  $891,236.80.  These 
figures  would  seem  to  indicate  that  the  scheme  to  fund  the 
$241,000,000  of  Continental  bills  of  credit  into  $6,000,000  of 
five-per-cent  certificates  having  fallen  through.  Congress, 
still  under  the  influence  of  the  hard-money  party,  which 
never  intended  to  make  the  issues  a  legal  tender  to  come  in 
competition  with  gold  and  silver,  as  the  circulating  currency, 
recklessly  continued  to  issue  the  Continental  bills  of  credit 
and  the  new  certificates. 

In  1781  there  was  issued  $11,408,095,  of  the  old  emis- 
sions, and  they  had  receded  in  value  to  a  thousand  for  one, 
when,  as  Mr.  Jefferson  in  his  works,  \"ol.  LX,  page  248, 
writes,  "  It  then  expired  without  a  single  groan.  Not  a 
murmur  was  heard  among  the  people.  On  the  contrary, 
universal  congratulation  took  place  on  their  seeing  the 
gigantic  mass,  whose  dissolution  had  threatened  convulsions 
which  should  shake  their  infant  confederacy  to  its  center, 
quietly  interred  in  its  grave." 

Sumner,  of  Yale,  writes  thus  superciliously  of  it.  indica- 
ting only  too  clearly  the  Alasssachusetts  idea  and  concep- 
tion :  — 

"  The  paper  was  worth  more  for  advertisement,  or  a 
joke,  than  for  any  prospect  of  any  kind  of  redemption.  A 
barber's  shop  in  Philadelphia  was  papered  with  it.  and  a 
dog.  coated  with  tar,  and  the  bills  stuck  all  over  him,  was 
paraded  in  the  streets." 


72  The  Le^al-Tender  Problem 

When  it  is  recalled  that  the  colonists  knew  how  to  issue 
paper  notes  as  money,  so  that  they  would  be  effective  as 
a  circulating  currency  and  retain  their  value,  and  that  it 
had  been  done  by  Massachusetts  and  Pennsylvania  in  a 
way  that  had  proved  wise,  beneficent,  and  safe,  it  is  evident 
that  the  Continental  currency  was  issued  as  it  was,  either  to 
be  retired  by  a  special  tax  or  repudiated. 

It  is  now  apparent  that  it  was  never  intended  that  they 
should  be  issued  as  full  legal  tenders,  and  usurp  for  the 
time  of  war,  and  for  years  after  its  termination,  the  monop- 
oly that  gold  and  silver  .thus  early  in  the  history  of  the 
country  was  claiming. 

The  fact  that  there  was  not  in  the  entire  country  more 
that  five  or  ten  million  dollars  in  specie,  and  that  this  would 
be  inadequate  to  conduct  the  war,  was  acknowledged  by 
every  one ;  but  instead  of  acting  upon  this  knowledge,  and 
making  the  notes  a  legal  tender  for  all  debts  public  and 
private,  with  the  understanding  that  at  the  end  of  the  war 
they  could  be  exchanged  for  interest-bearing  obligations 
as  fast  as  gold  and  silver  could  be  secured  to  take  their 
place,  they  were  issued  as  the  merest  temporary  substitute, 
without  any  of  the  characteristics  or  qualities  of  money 
whatever.  No  such  financial  chicanery  was  ever  practised 
upon  a  people  before  in  the  preparation  for  a  struggle  for 
libertv. 

It  was  not  the  method  that  was  adopted  by  some  of  the 
colonies  in  making  the  notes  a  full  legal  tender  for  all  debts 
public  or  private,  or  redeemable  in  State  stock,  as  was  the 
first  issue  of  Massachusetts.  It  was  not  the  method  that 
might  have  been  devised  from  an  acquaintance  with  the 
experience  of  the  Bank  of  Venice,  wherein  the  sale  of  the 
legal-tender  quality  by  the  Government  defrayed  its  ex- 
penses, fought  its  battles,  and  sustained  its  trade  and  com- 


The  J  Far  for  Independence  73 

merce  for  three  hundred  years,  without  a  single  financial 
reversion.  It  was  the  unscrupulous  and  unpatriotic  attempt 
of  a  buccaneering-  set  of  financiers,  attitudinizing  as  revolu- 
tionists, to  make  the  people  bear,  by  a  direct  tax,  the  expenses 
of  the  war,  in  order  that  Massachusetts  might  be  enabled  to 
reap  all  the  advantage  from  her  sister  colonies  that  she  had 
calculated  upon  in  1773,  when  she  reached  a  specie  basis. 


V 

The  Bank  of  North  America 

The  hard-money  faction  in  Congress  was  so  far  trium- 
phant. It  had  succeeded  in  issuing  $241,552,280  of  Con- 
tinental currency  previous  to  1780,  and  it  had  endeavored 
to  fund  this  sum  into  one  fortieth  of  its  nominal  value  in 
five-per-cent  certificates. 

Failing  in  this  attempt  to  reduce  at  the  same  tinie  the 
circulating  medium  and  the  obligations  it  had  pledged  its 
faith  to  pay,  it  recklessly,  in  1780  and  1781,  issued  an  addi- 
tional $94,316,415.47  of  the  Continental  currency,  and  $2,- 
070,485  of  the  five-per-cent  certificates,  a  total  of  $337,939,- 
191.27.  This  conduct,  evincing  an  utter  disregard  of  its 
many  promises,  and  indicating  the  intention  of  the  money 
faction  to  neither  allow  Congress  to  make  the  bills  of  credit 
a  legal  tender  nor  a  legal  obligation,  completely  destroyed 
the  value  of  this  immense  sum,  both  as  a  circulating  medium 
and  as  an  obligation,  and  it  went  out  of  existence. 

The  original  intention  either  to  pay  the  expenses  of  the 
war  by  a  direct  tax  or  to  repudiate  the  bills  of  credit,  was 
accomplished  by  the  destruction  of  the  bills  of  credit,  both 
as  a  circulating  medium  and  as  obligations. 

The  war  was  not  over,  however,  and  the  only  circulating 
money  in  existence  was  some  $5,000,000  or  $10,000,000  in 
specie,  and  $200,000,000  in  paper  currency  issued  by  the 
States  since  1775. 

This  paper-money  issue  of  the  States  was  not  under  the 
control  of  Congress,  and  the  disposition  of  it,  either  by  pay- 
ment or  repudiation,  was  safely  left  to  the  hard-money  party 

74 


The  Bank  of  North  America  75 

in  each  State.  It  received  no  recognition  by  Congress,  not- 
withstanding the  great  stress  that  was  upon  that  body  to 
supply  a  circulating  medium. 

The  hard-money  faction  in  and  out  of  Congress  was  as 
much  determined  on  its  destruction,  and  that  it  should  not 
circulate  as  mediums  of  payment,  as  they  were  toward  the 
Continental  currency.  Under  these  circumstances,  it  being 
incumbent  upon  Congress  to  furnish  a  circulating  currency 
to  prosecute  the  war,  the  organization  of  a  bank  to  issue 
notes  was  advocated. 

It  was  insisted  that  under  the  Articles  of  Confederation, 
Congress  had  the  power  to  charter  a  bank.  Congress  did 
have  explicit  power  to  emit  bills  of  credit,  and  that  right 
carried  with  it  the  implied  power  to  make  them  a  legal 
tender.  Congress  had  no  power  to  grant  charters  of  incor- 
poration, arid  therefore  no  right  to  create  such  institutions. 
This  was  finally  admitted  after  full  argument,  as  will  be 
seen  in  a  letter  of  Mr.  Madison's ;  and  yet  the  hard-money 
party  wielded  such  influence  that  Congress  exercised  a 
power  it  did  not  have  to  the  exclusion  of  one  that  was 
specifically  conferred  upon  it.  The  granting  of  a  charter 
for  a  bank  was  obtained  under  the  pretense  of  assisting  the 
States  in  their  struggle  for  independence. 

Air.  Madison's  letter,  dated  January  8,  1782,  addressed 
to  Edmund  Pendleton;  is  as  follows : - 

"  Dear  Sir :  Yesterday  was  opened  for  the  first  time  the 
bank  instituted  under  the  auspices  of  Congress.  ...  It  is 
pretty  analogous  in  its  principles  to  the  Bank  of  Eng- 
land. .  .  . 

"  The  competency  of  Congress  to  such  an  act  had  been 
called  in  question  in  the  first  instance;  but  the  subject  not 
Iving  in  so  near  and  distinct  a  view,  the  objection  did  not 
prevail.  On  the  last  occasion,  the  general  opinion,  though 


76  The  Legal-Tender  Problem 

with  some  exceptions,  was,  that  the  Confederation  gave  no 
such  power,  and  that  the  exercise  of  it  would  not  bear 
forensic  cHsquisition,  and  consequently  would  not  avail  the 
institution. 

"  The  bank,  however,  supposing  that  such  a  sanction 
from  Congress  would  at  least  give  it  a  dignity  and  pre-emi- 
nence in  the  public  opinion,  urged  the  engagement  of  Con- 
gress ;  that  on  this  engagement  the  subscription  had  been 
made,  and  that  a  disappointment  would  leave  the  subscribers 
free  to  withdraw  their  names. 

"  These  considerations  were  re-enforced  by  the  super- 
intendent of  finance,  who  relied  on  this  institution  as  a 
great  auxiliary  to  his  department ;  and,  in  particular,  ex- 
pected aid  from  it  in  a  payment  he  is  exerting  himself  to 
make  to  the  army.  .  .  . 

"  You  will  conceive  the  dilemma  in  which  these  circum- 
stances placed  the  members  who  felt  on  one  side  the  impor- 
tance of  the  institution,  and  on  the  other  a  want  of  power, 
and  an  aversion  to  assume  it. 

"  Something  like  a  middle  way  finally  produced  an 
acquiescing,  rather  than  an  affirmative,  vote.  A  charter  of 
incorporation  w^as  granted,  with  a  recommendation  to  the 
States  to  give  it  all  the  necessary  validity  within  their  respect- 
ive jurisdictions.  As  this  is  a  tacit  admission  of  a  defect  of 
power,  I  hope  it  will  be  an  antidote  to  the  poisonous  tendency 
of  precedents  of  usurpations." — "  Madison's  Papers,"  Vol. 
I,  page  104. 

The  necessities  of  the  army  in  the  field  was  the  pressure 
brought  to  bear  upon  Congressmen  by  the  conspirators  to 
carry  out  their  nefarious  plans. 

The  bank  organized  in  1781  was  known  as  "  The  Bank 
of  North  America."  Its  capital  stock  was  at  first  $400,000, 
and  was  afterward  increased  to  $2,000,000.     Congress  sub- 


The  Bank  of  North  America  77 

scribed  for  part  of  the  stock,  and  the  balance  was  taken  by 
individuals.  The  bank  was  authorized  to  issue  notes,  and 
these  notes  were  made  a  Icg^al  tender  for  all  debts  due  the 
Government.  This  made  the  bank-notes  mediums  of  pay- 
ment in  the  settlement  of  all  debts  due  the  Government,  and 
virtually  made  them  obligations  of  the  Government,  which 
were  redeemed  as  often  as  they  were  accepted  by  the  Gov- 
ernment in  payment  of  dues,  taxes,  and  debts  of  whatsoever 
nature.  This  one  characteristic  bestowed  upon  the  bank- 
notes was  the  one  thing  that  the  hard-money  faction  would 
never  permit  to  be  given  the  Continental  currency. 

The  efifect  of  making  the  bank-notes  a  legal  tender  in 
the  payment  of  the  debts  due  the  Government  was  to  give 
them  such  general  circulation  that  very  few  were  presented 
to  the  bank  for  payment  in  coin.  In  fact  they  were  pre- 
ferred to  coin,  as  paper  money  always  has  and  always  will 
be  when  it  is  made  legal  tender,  and  can  be  used  in  making 
payments. 

Another  effect  was  that  the  coin,  which  had  been  estima- 
ted to  be  only  some  $5,000,000,  now  came  from  its  hiding 
place,  and  soon  increased  to  $10,000,000.  The  policy  of  the 
hard-money  faction  had  been  to  keep  their  coin  out  of  cir- 
culation, knov.'ing  that  they  intended  to  destroy  or  repudiate 
the  Continental  currency,  and  now,  that  having  been  accom- 
plished, and  the  banking  scheme  being  in  operation,  they 
readily  exchanged  their  coin  for  bank-notes,  and  in  addi- 
tion deposited  large  amounts  in  the  bank.  The  bank-notes 
were  preferable  for  use  in  all  local  transactions,  and  the 
coin  was  not  used  except  for  small  change. 

The  war  was  fought  to  a  successful  termination  in  1783, 
and  the  financiers  reaped  the  benefit  of  the  double  battle, — 
the  physical  one  against  English  soldiers,  and  the  financial 
one  against  paper  issues. 


VI 

Four  Years'  Struggle  to  Secure  the  Payment 

of  the  Debt 

After  the  termination  of  the  war,  and  the  independence 
of  the  country  was  assured,  Congress,  under  date  of  April 
i8,  1783,  issued  an  address  to  the  States  urging  upon  them 
the  necessity  of  making  provision  to  pay  the  debts  con- 
tracted, and  calHng  attention  to  the  want  of  power  in  the 
Articles  of  Confederation  to  accomplish  this  purpose.  The 
following  table,  from  "  History  of  the  Currency,"  page  17, 
show  the  amounts  and  kinds  of  monev  issued :  — 


CONTINENTAL 

CURRENCY. 

Year. 

Old  Emissions. 

Total. 

1775 
1776 

$6,000,000  J 
5,000,000  \ 

Issued    before    Declaration 
of  Independence 

\ 

$11,000,000 

1776 

5,000,000 

5,000,000 

1777 

13,000,000 

13,000,000 

1778 

23,500,000 

23,500.000 

$52,500,000    Issued  before   the  Articles  of  Confedera- 
tion were  signed. 

New  Emissions. 

1778  $  40,000,000  $  40,000,000 

1779  140,052,280  140,052,280 

1780  82,908,320                  $  891,236  83,799,556 

1781  11,408,095                     1,179,249  12,587,344 


$326,868,695        $2,070,485  $328,939,180 


78" 


The  Four  Years'  Struggle  79 


PAPER     MONEY    ISSUED    BY    THE    STATES    DURING    THE    WAR. 

Massachusetts    $    3,868,000 

Rhode   Island 714.000 

Connecticut     1,516,500 

New  York   1,161,250 

New   Jersey    1,618,000 

Pennsylvania     4,324,000 

Delaware 146,500 

Maryland    950.000 

Virginia     128,441.000 

North    Carolina    • 33,225,000 

South   Carolina    33,458,926 


$209,524,776 


It  will  be  noticed  a.s  significant  of  the  intluence  the  hard- 
money  faction  attempted  to  exercise  over  Congress,  that 
on  February  3,  1781,  it  endeavored  to  force  the  passage  of 
the  following  resolution  :  — 

"  That  it  be  recommended  to  the  several  States  as  indis- 
pensably necessary  that  they  vest  a  power  in  Congress  to 
levy,  for  the  use  of  the  United  States,  a  duty  of  five  per  cent 
advalorem,  at  the  time  and  place  of  importation,  upon  all 
goods,  wares,  and  merchandise,  of  foreign  growth  and  man- 
ufacture, which  may  be  imported  into  any  of  the  said  States 
from  any  foreign  port,  island,  or  plantation,  after  the  ist 
day  of  May,   1781,  except  .   .  . 

"Also  a  like  duty  of  five  per  cent  on  all  prizes  and  prize 
goods,  condemned  in  the  courts  of  the  admiralty  of  any  of 
those  States  as  lawful  prizes.  That  the  moneys  arising 
from  said  duties  be  appropriated  to  the  discharge  of  the 
principal  and  interest  of  the  debts  already  contracted,  or 
which  may  be  contracted,  on  the  faith  of  the  United  States 
for  supporting  the  present  war.  That  the  said  duties  be 
continued  until  the  said  debts  shall  be  fully  and  finally  dis- 
charged."—"ir///o//'.y  Debates,"  Vol.  i,  page  pj. 


8o  The  Legal-Tender  Problem 

It  appears  that  just  so  soon  as  the  Continental  currency 
had  virtually  been  repudiated,  and  money  to  prosecute  the 
war  must  be  had  from  some  source,  the  hard-money  faction 
decided  that  it  would  supply  the  necessary  amount,  if  the 
States  would  empower  Congress  to  collect  import  dues,  and 
pledge  these  dues  to  the  payment  of  the  loans. 

It  is  evident  that  the  tactics  of  the  hard-money  faction 
in  Congress  had  premeditatedly  made  a  condition  of  afifairs 
where  the  patriots  in  that  body  were  forced  to  grant  them 
their  unconstitutional  bank.  They  knew  that  the  success  of 
the  bank  and  the  making  of  their  fortunes  depended  on  the 
success  of  the  Revolution  and  in  getting  control  of  the 
import  dues,  even  before  the  close  of  the  war.  This  is  evi- 
denced by  the  following :  — 

The  State  of  Rhode  Island  on  November  30,  1782, 
appears  to  have  entered  a  solemn  written  protest  against 
such  an  extension  of  the  powers  of  Congress  as  is  embodied 
in  the  resolutions  of  February  3,  1781,  and  on  December 
16,  1782,  Congress  issued  a  reply  to  the  protest. 

Among  many  other  reasons  advanced  by  Congress 
against  the  position  taken  by  Rhode  Island  and  other  States 
is  the  following :  "  The  measure  proposed  is  a  measure  of 
necessity.  Repeated  experiments  have  shown  that  the 
revenue  to  be  raised  within  these  States  is  altogether  inade- 
quate to  the  public  wants.  The  deficiency  can  only  be  sup- 
plied by  loans.  Our  applications  to  foreign  powers,  on 
whose  friendship  we  depended,  have  had  a  success  far  short 
of  our  necessities.  The  next  resource  is  to  borrozu  from 
individuals.  These  will  neither  be  actuated  by  generosity 
nor  reasons  of  State.  It  is  to  their  interest  alone  zve  must 
appeal.  To  conciliate  these,  we  must  not  only  stipulate  a 
proper  compensation  for  zvhat  they  lend,  but  we  must  give 


The  Four   Years'  Struggle  8i 

security  for  the  performance.  We  must  pledge  an  ascer- 
tained fund,  simple  and  productive  in  its  nature,  general  in 
its  principle,  and  at  the  disposal  of  a  single  will.  There 
can  be  little  confidence  in  a  security  under  the  constant 
revisal  of  thirteen  different  deliberations.  It  must,  once  for 
all,  be  defined  and  established  on  the  faith  of  the  States 
solemnly  pledged  to  each  other,  and  not  revocable  by  any 
without  a  breach  of  the  general  compact." — ''Elliott's  De- 
hates,"  Vol.  I,  page  102. 

This  nnist  have  surprised  a  patriotic  people  that  had 
accepted  the  millions  of  Continental  currency  to  fight  Eng- 
lish txrannv,  and  had  chccrfullv  made  a  gift  of  it  to  the 
nation,  and  who  had  accepted  $209,000,000  of  State  issues 
in  payment  for  effort  made  in  the  same  cause  with  but  little 
hope  of  its  ever  being  paid,  and  who  were  yet  willing  to 
accept  more  if  they  were  issued  in  such  a  manner  that  they 
could  have  paid  debts  with  them. 

The  reply  of  Congress  to  the  objections  of  Rhode  Island 
adds  further :  "  The  United  States  have  already  contracted 
a  debt  in  Europe  and  in  the  country,  for  which  their  faith  is 
pledged.  The  capital  of  this  debt  can  only  be  discharged 
by  degrees ;  but  a  fund  tor  this  purpose,  and  for  paying 
the  interest  annually,  on  every  principle  of  policy  and  jus- 
tice, ought  to  be  provided.  The  omission  will  be  the  deep- 
est ingratitude  and  cruelty  to  a  large  number  of  meritorious 
individuals,  who,  in  the  most  critical  periods  of  the  war, 
have  adventured  their  fortunes  in  supporting  our  independ- 
ence. It  would  stamp  the  national  character  with  indelible 
disgrace." — "Elliott's  Debates,"  Vol.   i,  page  104. 

It  was  no  reflection  uj)on  the  Government  to  repudiate 
the  Continental  currency,  but  it  would  be  an  indelible  dis- 
grace not  to  pay  the  millions  the  bankers  had  loaned  it, 
6 


82  The  Legal-Tender  Problem 

That  same  idea  dominates  this  country  to-day,  and  has  con- 
trolled its  action  through  all  its  financial  legislation. 

Congress  closes  its  reply  as  follows  :  — ■ 

"After  the  most  full  and  solemn  deliberation,  under  a 
collective  view  of  the  public  difficulties,  they  recommend  a 
measure  which  appears  to  them  the  corner  stone  of  the  pub- 
lic safety;  they  see  the  measure  suspended  for  nearly  two 
years ;  partially  complied  with  by  some  of  the  States ;  re- 
jected by  one  of  them,  and  in  danger,  on  that  account,  to 
be  frustrated ;  the  public  embarrassments  every  day  increas- 
ing; the  dissatisfaction  of  the  army  growing  more  serious; 
the  other  creditors  of  the  public  clamoring  for  justice;  both 
irritated  by  the  delay  of  measures  for  their  present  relief  or 
future  security ;  the  hopes  of  our  enemies  encouraged  to 
protract  the  war;  the  zeal  of  our  friends  depressed  by  an 
appearance  of  remissness  and  want  of  exertion  on  our  part ; 
Congress  harrassed ;  the  national  character  suffering,  and 
the  national  safety  at  the  mercy  of  events." — Id.,  page  io6. 

Congress  was  not  successful  in  getting  the  States  to  give 
it  the  extension  of  the  powers  for  the  purposes  so  pathet- 
ically set  forth.  But  it  was  not  discouraged,  and  on  April 
i8,  1783,  it  addressed  itself  to  the  matter  again  in  somewhat 
better  shape.  On  this  day  it  passed  the  following  resolu- 
tion :  — 

"Resolved,  By  nine  States,  that  it  be  recommended  to 
the  several  States,  as  indispensably  necessary  to  the  restora- 
tion of  public  credit,  and  to  the  punctual  and  honorable  dis- 
charge of  the  public  debt,  to  invest  the  United  States  in 
Congress  assembled  with  a  power  to  levy,  for  the  use  of 
the  United  States,  the  following  duties  upon  goods  imported 
into  the  said  States  from  any  port,  island,  or  plantation.  .  .  . 

"  Provided,  that  none  of  the  said  duties  shall  be  applied 
to  any  other  purpose  than  the  discharge  of  the  interest  or 


The  Four  Years'  Struggle  83 

principal  of  the  debts  contracted,  on  the  faith  of  the  United 
States  for  supporting  the  war,  agreeably  to  the  resolution  of 
the  1 6th  day  of  December  last,  nor  to  be  continued  for  a 
longer  term  than  twenty-five  years." — "Elliott's  Debates," 
Vol.   I,  page  pj. 

"  That  it  be  further  recommended  to  the  several  States 
to  establish  for  a  term  limited  to  twenty-five  years,  and  to 
appropriate  to  the  discharge  of  the  interest  and  principal  of 
the  debts  contracted  on  the  faith  of  the  United  States  for 
supporting  the  war,  substantial  and  effectual  revenues  .  .  . 
for  supplying  their  respective  proportions  of  one  million 
five  hundred  thousand  dollars,  annually,  exclusive  of  the 
aforementioned   duties." —  Id.,  page  95. 

In  support  of  their  action,  and  to  influence  a  grant  of 
the  power  to  Congress,  an  address  was  made  to  the  States 
on  April  26,  1783,  to  accompany  the  act  of  April  18,  1783. 
The  language  used  in  the  act  was  general,  and  in  the 
fear  that  it  might  be  thought  that  all  the  debts  heretofore 
set  out  were  included,  and  their  payment  be  insisted  upon, 
this  address  was  particular  to  set  forth  what  part  of  the  debt 
was  intended. 

It  will  be  seen  that  only  so  much  of  the  debt  hereafter 
set  forth,  under  the  head  of  "  Debt  Proper,"  as  was  in 
existence  at  that  date,  was  intended  to  be  provided  for.  The 
portion  of  said  report  that  it  is  deemed  necessary  for  the 
purpose  in  view  is  as  follows :  — 

"  The  prospect  which  has  for  some  time  existed,  and 
which  is  now  happily  realized,  of  a  successful  termination 
of  the  war,  .  .  .  has  made  it  the  duty  of  Congress  to  review 
and  provide  for  the  debts  which  the  war  has  left  upon  the 
United  States,  and  to  look  forward  to  the  means  of  obvia- 
ting dangers  which  may  interrupt  the  harmony  and  tranquil- 
lity of  the  Confederacy. 


84  The  Legal-Tender  Problem 

"  The  first  measure  recommended  is,  effectual  provision 
for  the  debt  of  the  United  States.  The  amount  of  these 
debts,  so  far  as  they  can  now  be  ascertained,  is  $42,000,375. 
To  discharge  the  principal  of  this  aggregate  debt  at  once, 
or  in  any  short  period,  is  evidently  not  within  the  compass 
of  our  resources.  .  .  .  The  amount  of  the  annual  interest 
is  computed  to  be  $2,415,956.  Funds,  therefore,  which  will 
certainly  and  punctually  produce  this  annual  sum,  at  least, 
must  be  provided.  In  devising  these  funds.  Congress  did 
not  overlook  the  mode  of  supplying  the  common  treasury, 
provided  by  the  Articles  of  Confederation,  but,  after  the 
most  respectful  consideration  of  th.at  mode,  they  were  con- 
strained to  regard  it  as  inadequate  and  inapplicable  to  the 
form  into  which  the  public  debt  must  be  thrown.  .  .  .  Some 
departure,  therefore,  in  the  recommendation  of  Congress, 
from  the  Federal  Constitution,  was  tmavoidable ;  but  it  v/ill 
be  found  to  be  as  small  as  could  be  reconciled  with  the  object 
in  view,  and  to  be  supported  besides  by  solid  considerations 
of  interest  and  sound  policy." — "Elliott's  Debates,"  Vol.  i, 
page  ()6. 

These  are  the  views  now  held  by  the  faction  which  had 
so  framed  the  Continental  Congress  and  the  Articles  of  Con- 
federation that  the  bills  of  credit  emitted  either  had  to  be 
taken  up  by  a  direct  tax  or  repudiated. 

It  appears  strange  at  this  day,  that  when  the  five-per-cent 
certificates  to  fund  the  Continental  currency  were  issued, 
the  deficiency  of  the  Articles  of  Confederation  was  not  ap- 
parent. It  is  stranger  still  that  the  issue  of  Continental 
currency  under  the  defective  Articles  was  continued  until 
so  many  were  issued  that  they  became  entirely  worthless, 
and  it  became  necessary  to  charter  a  bank.  And  it  is  aston- 
ishing, that  after  a   domestic  debt   of  $28,858,180.65   was 


The  Four  Years'  Struggle  85 

created  through  the  agency  of  this  bank  by  the  loan  of  gold 
and  silver  to  the  Government,  when  there  was  not  ten  mil- 
lions of  tlie  metals  in  the  country,  they  should  all  at  once 
have  such  clear  ideas  as  to  how  they  could  secure  the  pay- 
ment of  the  principal  and  the  interest. 

The  policy  proposed  to  the  States  by  Congress  was  to 
devote  the  tax  on  imports  to  the  payment  of  the  interest  on 
the  debt  for  twenty-five  years ;  and  "  to  render  the  fund  as 
productive  as  possible,  and  at  the  same  time  to  narrow  the 
room  for  collusions  and  frauds,  it  has  been  adjudged  an 
improvement  of  the  plan,  to  recommend  a  liberal  duty  on 
such  articles  as  are  most  susceptible  of  a  tax  according  to 
their  quantity,  and  are  of  most  general  consumption,  leaving 
all  other  articles,  as  heretofore  proposed,  to  be  taxed  accord- 
ing to  their  value.  The  amount  of  the  fund  is  computed  to 
be  $915,956.  The  residue  of  the  computed  interest  is  $1,- 
500,000,  and  is  referred  to  the  States  to  be  provided  for  by 
such  funds  as  they  may  judge  most  convenient.  The  neces- 
sity of  making  the  two  foregoing  provisions  one  and  indi- 
visible act,  is  apparent."— "£///o//'.f  Debates,"  Vol.  i,  page 

97- 

After  explaining  more  in  detail  the  workings  of  the  plan. 

and  stating  the  reasons  for  insisting  upon  the  provisions 
being  made  indivisible  and  irrevocable,  the  address  recom- 
mends a  constitutional  change  of  the  rule  by  which  a  parti- 
tion of  the  common  burdens  is  to  be  made  among  the  States. 
It  states :  "  The  plan  thus  communicated  and  explained 
by  Congress  must  now  receive  its  fate  from  their  constitu- 
ents. All  the  objects  comprised  in  it  are  conceived  to  be  of 
great  importance  to  the  happiness  of  this  Confederated 
Republic  —  are  necessary  to  render  the  fruits  of  the  Revo- 
lution a  full  reward  for  the  blood,  the  toils,  the  cares,  and 


86  The  Legal-Tender  Problem 

the  calamities  which  have  purchased  it.  But  the  object,  of 
which  the  necessity  will  be  particularly  felt,  and  which  is 
peculiarly  the  duty  of  Congress  to  inculcate,  is  the  provision 
recommended  for  the  national  debt.  Although  this  debt  is 
greater  than  could  have  been  wished,  it  is  still  less,  on  the 
whole,  than  could  have  been  expected ;  and  when  referred  to 
the  cause  in  which  it  has  been  incurred,  .  .  .  ought  to  be 
borne  not  only  with  cheerfulness,  but  with  pride. 

"  But  the  magnitude  of  the  debt  makes  no  part  of  the 
question.  It  is  sufficient  if  the  debt  has  been  fairly  con- 
tracted, and  that  justice  and  good  faith  demand  that  it 
should  be  fully  discharged.  Congress  had  an  option  between 
different  modes  of  discharging  it.  The  same  option  is  the 
only  one  that  can  exist  with  the  States.  The  mode  which 
has,  after  long  and  elaborate  discussion,  been  preferred,  is, 
we  are  persuaded,  the  least  objectionable  of  any  that  would 
have  been  equal  to  the  purpose.  Under  this  persuasion,  we 
call  upon  the  justice  and  plighted  faith  of  the  several  States 
to  give  it  its  proper  effect,  to  reflect  on  the  consequences 
of  rejecting  it,  and  to  remember  that  Congress  will  not  be 
answerable   for  them." — "Elliott's  Debates,"   Vol.    i,   page 

99- 

When  it  is  recalled  that  this  same  Congress  had  repu- 
diated all  the  currency  issued  to  fight  the  war  of  independ- 
ence, in  order  that  the  banking  scheme  might  be  forced 
upon  the  country,  the  special  pleading  in  the  address  reads 
like  the  essence  of  human  gall  and  insolence, ,  and  especially 
the  clause  which  reads,  "  It  is  sufficient  if  the  debt  has  been 
fairly  contracted,  and  that  justice  and  good  faith  demand 
that  it  should  be  fully  discharged." 

As  if  answering  the  suspicion  in  their  own  minds  that 
the  people  would  see  through  the  thin  veneer  of-  fair  deal- 
ing they  were  attempting  to  throw  about  the  financial  legis- 


The  Four  Years'  Struggle  87 

lation  of  the  Revolution,  they  grouj)  the  honest  foreign  debt 
and  the  debt  due  the  soldiers  with  the  debt  due  them  which 
had  been  contracted  through  the  agency  of  the  bank. 

"If  other  motives  than  that  of  justice,"  the  report  states, 
"  could  be  requisite  on  this  occasion,  no  nation  could  ever 
feel  stronger ;  for  to  whom  are  the  debts  to  be  paid  ?  To  an 
ally,  in  the  first  place,  who,  to  the  exertion  of  his  arms  in 
support  of  our  cause,  has  added  the  succors  of  his  treasury ; 
who,  to  his  important  loans,  has  added  liberal  donations.  .  .  . 
To  individuals  in  a  foreign  country,  in  the  next  place,  who 
were  the  first  to  give  so  precious  a  token  of  their  confidence 
in  our  justice,  and  of  their  friendship  for  our  cause.  .  .  . 
Another  class  of  creditors  is  that  illustrious  and  patriotic 
band  of  fclloiv  citizens  whose  blood  and  wdiose  bravery  have 
defended  the   liberties  of  their  country.   .   .   . 

"  The  remaining  class  of  creditors  is  composed  partly 
of  such  of  our  fellow  citizens  as  originally  lent  to  the  pub- 
lic the  use  of  their  funds,  or  have  since  manifested  most 
confidence  in  their  country  by  receiving  transfers  from  the 
lenders;  and  partly  of  those  whose  property  has  been  either 
advanced  or  assumed  for  the  public  service.  To  discrim- 
inate the  merits  of  these  several  descriptions  of  creditors 
would  be  a  task  equally  unnecessary  and  invidious.  If  the 
voice  of  humanity  pleads  more  loudly  in  favor  of  some  than 
of  others,  the  voice  of  policy,  no  less  than  of  justice,  pleads 
in  favor  of  all.  A  wise  nation  will  never  permit  those  who 
relieve  the  wants  of  their  country,  or  who  rely  most  on  its 
faith,  its  firmness,  and  its  resources,  when  either  of  them  is 
distrusted,  to  sufifer  by  the  event:'— "Elliott's  Debates,"  Vol. 
I,  pages  pp,  100. 

The  address  closes  with  the  following  homily  upon  gov- 
ernmental morals:  "If  justice,  good  faith,  honor,  gratitude, 
and  all  the  other  qualities  which  ennoble  the  character  of  a 


88  The  Legal-Tender  Problem 

nation,  and  fulfills  the  ends  of  Government,  be  the  fruits  of 
our  establishments,  the  cause  of  liberty  will  acquire  a  dig- 
nity and  luster  which  it  has  never  yet  enjoyed,  and  an 
example  will  be  set  which  can  not  but  have  the  most  favor- 
able influence  on  the  rights  of  mankind.  If,  on  the  other 
side,  our  Governments  should  be  unfortunately  blotted  with 
the  reverse  of  these  cardinal  and  essential  virtues,  the  great 
cause  for  which  we  have  engaged  to  vindicate  will  be  dis- 
honored and  betrayed,  the  last  and  fairest  experience  in 
favor  of  the  rights  of  human  nature  will  be  turned  against 
them,  and  their  patrons  and  friends  exposed  to  be  insulted 
and  silenced  by  the  votaries  of  tyranny  and  usurpation." — 
Id.,  page  100. 

All  this  wall  happen  if  their  domestic  debt  of  twenty- 
eight  millions  is  not  secured"  and  eventually  paid ;  for  the 
payment  of  that  sum  was  the  only  thing  they  were  really 
interested  in,  and  to  secure  the  payment  of  the  same  the 
address  was  framed  as  it  was. 

Notwithstanding  these  dire  predictions,  it  appears  that 
the  people  were  not  moved  to  take  the  action  necessary  to 
authorize  the  hard-money  faction  in  Congress  to  secure  the 
payment  of  their  debt  and  interest,  and  on  January  21,  1786, 
the  General  Assembly  of  Virginia  passed  the  following 
resolution :  — 

"  That be  appointed  commission- 
ers, who,  or  any  five  of  them,  shall  meet  such  commissioners 
as  may  be  appointed  by  the  other  States  in  the  Union,  at  a 
time  and  place  agreed  on,  to  take  into  consideration  the  trade 
of  the  United  States ;  to  examine  the  relative  situation  and 
trade  of  said  States,  to  consider  how  far  a  uniform  system 
in  their  commercial  regulations  may  be  necessary  to  their 
common    interest   and    their   permanent    harmony,    and   to 


The  Four  Years'  Struggle  89 

report  to  the  several  States  such  an  act  relative  to  this  great 
object  as,  when  unanimously  ratified  by  them,  will  enable 
the  United  States  in  Congress  assembled,  effectually  to  pro- 
vide for  the  same."  —  "  Elliott's  Debates,"  Vol.  i,  page 
116. 

"  In  response  to  this  call,  delegates  from  seven  of  the 
States  met  at  Annapolis,  Md.,  on  September  11,  1786,  and 
adjourned  September  14,  because  they  did  not  conceive  it 
advisable  to  proceed  on  the  business  of  their  mission  under 
the  circumstances  of  so  partial  and  defective  a  representa- 
tion."—  /(/.,  page  iiy. 

The  report  then  makes  the  acknowledgment  upon  the 
part  of  all  the  commissioners  of  the  defects  in  the  Articles 
of  Confederation,  and  the  importance  of  calling  a  convention 
to  cure  these  defects,  and  grant  the  Government  enlarged 
powers  in  accordance  with  the  suggestions  that  have  here- 
tofore been  the  subject  of  public  discussion. —  Id.,  page  up. 

They  therefore  recommended  that  the  States  appoint 
commissioners  to  meet  in  Philadelphia  on  the  second  Mon- 
day in  May,  1787,  "  to  take  into  consideration  the  situation 
of  the  United  States,  to  devise  such  further  provisions  as 
shall  appear  to  them  necessary  to  render  the  Con'stitution 
of  the  Federal  Government  adequate  to  the  exigencies  of 
the  Union." 

The  commissioners  sent  a  copy  of  the  report  to  Con- 
gress, and  on  February  21,  1787,  that  body  had  under  con- 
sideration the  following :  — 

"Resolved,  That  Congress,  having  had  under  consider- 
ation the  letter  of  John  Dickerson,  Esq.,  chairman  of  the 
conmiissioners  who  assembled  at  Annapolis  during  the  last 
year ;  also  the  proceedings  of  said  commissioners ;  and  en- 
tirely coinciding  with  them  as  to  the  insufficiency  of  the 


90  The  Legal-Tender  Problem 

Federal  Government,  and  the  necessity  of  devising  such  fur- 
ther provisions  as  shall  render  the  same  adequate  to  the 
exigencies  of  the  Union,  do  strongly  recommend  to  the  dif- 
ferent Legislatures  to  send  forward  delegates,  to  meet  the 
proposed  condition,  on  the  second  Monday  in  May  next,  at 
the  city  of  Philadelphia."-^  Id.,  pages  up,  120. 


VII 

Constitutional  Convention 

This  time  they  were  successful,  and  the  Convention 
which  met  at  Philadelphia  on  the  second  Monday  of  May, 
1787,  framed  the  Constitution  of  the  United  States  of 
America. 

After  the  strenuous  efforts  of  the  hard-money  faction 
for  the  past  four  years  to  make  provision  for  the  payment 
of  the  debts  contracted  during  the  war,  a  large  part  of 
which  they  owned,  it  may  be  expected  that  they  would 
secure  strong  representation  in  the  Convention. 

The  people  under  the  separate  Governments,  as  free  and 
independent  States,  obligated  to  act  in  unison  by  the  Articles 
of  the  Confederation,  remembering  the  loss  that  they  had 
sustained  in  the  conduct  of  the  war,  were  not  concerned 
about  the  immediate  payment  of  the  balance  of  the  obliga- 
tions incurred,  especially  the  domestic  debt.  They  had, 
therefore,  paid  no  attention  to  the  appeals  of  the  hard-money 
faction  to  convene  and  make  provision  for  the  payment  of 
their  debts,  but  had  taken  a  breathing  spell  in  order  that 
they  might  deliberate  and  experience  the  workings  of  their 
practical  existence  as  a  free  people,  before  they  would  take 
final  action  for  all  the  future.  In  fact  the  demands  of  the 
moneyed  class,  who  had  so  managed  the  issuance  of  the 
Continental  currency  that  they  forced  the  unconstitutional 
grant  of  a  charter  for  a  bank  from  Congress  as  the  price  of 
their  assistance,  and  through  the  agency  of  which  they  had 
been  enabled  to  convert  their  coin  and  credit  into  the  obli- 
ge 


92  The  Legal-Tender  Problem 

gations  of  the  Government,  was  calculated  to  defer  the  time 
of  final  action. 

But  four  years  after  the  war  the  people  were  willing  that 
effort  should  be  made  to  establish  a  more  perfect  union  of 
the  States,  and  frame  a  form  of  government  that  would 
secure  to  them  forever  the  benefits  and  advantages  they 
had  fought  for  and  were  entitled  to. 

The  subsequent  history  of  the  country  bears  evidence 
that  they  succeeded  in  securing  and  providing  for  every- 
thing that  would  contribute  to  their  future  welfare,  except 
in  the  instances  that  the  hard-money  faction  cheated  them 
out  of  and  secured  to  themselves. 

The  war  for  freedom  from  English  tyranny  was  over. 
The  fight  for  freedom  from  the  greed  of  the  hard-money 
faction,  which  had  its  home  and  highest  expression  in 
Massachusetts  and  her  system  of  finance,  was  on. 

One  of  the  chief  contentions  in  the  Convention  was  upon 
the  proposition  that  they  should  guarantee  the  payment  of 
the  repudiated  obligations  of  the  States  and  Congress  which 
were  held  by  the  speculators.     This  was  resisted. 

Mr.  King,  of  Massachusetts,  speaking  in  favor  of  the 
guarantee,  said  he  thought  that  the  matter  was  of  more  con- 
sequence than  the  objectors  seemed  to  do.  "  Besides,"  he 
said,  "the  considerations  of  justice  and  policy  which  had 
been  mentioned,  it  might  be  remarked,  the  State  creditors, 
an  active  and  formidable  party,  would  otherwise  be  opJDOsed 
to  a  plan  which  transferred  to  the  Union  the  best  resources 
of  the  States  without  transferring  the  State  debts  at  the 
same  time.  The  State  debts  were  probably  of  greater 
amount  than  the  Federal." — "Madison  Papers,"  Vol.  j, 
page  1357. 

Mr.  Gerry,  of  Massachusetts,  also  advocating  the  propo- 
sition, "  enlarged  upon  the  merits  of  this  class  of  citizens 


Constitutional  Convention  93 

and  the  solemn  faith  wliich  had  been  pledged  under  the 
existing  Confederation."  "  If  this  should  be  changed,"  he 
said,  "as  here  proposed,  great  opposition  would  be  excited 
against  the  plan." — "Madison  Papers,"  Vol.  j,  pai!;e  1378. 

Mr.  Butler,  of  South  Carolina,  answering,  said,  "  It 
would  conipel  pa3'ment  to  blood-suckers  who  have  specu- 
lated on  the  distress  of  others,  as  well  as  to  those  who  had 
fought  and  bled  for  their  country.  He  wanted  to  discrim- 
inate  between  the  two  classes"  (Id.,  page  141 2),  and  there- 
fore he  opposed  the  guarantee  of  payment. 

j\Ir.  IMason,  of  Virginia,  said  "  there  was  a  great  dis- 
tinction between  the  original  creditors  and  those  who  pur- 
chased fraudulently  of  the  ignorant  and  distressed.  .  .  .  He 
was  sensible  of  the  difficulty  of  drawing  the  line  in  the  case, 
but  he  did  not  wish  to  preclude  the  attempt  "  (Jd.,  page 
142.}),  and  therefore  he  opposed  the  guarantee. 

j\Ir.  Gerry,  of  Massachusetts,  replied  "  that  the  frauds 
on  the  soldiers  ought  to  have  been  foreseen.  .  .  .  These 
poor,  ignorant  people  could  not  but  part  with  their  secu- 
rities. ...  As  to  stock  jobbers,  he  saw  no  reason  for  the 
censures  thrown  on  them.  .  .  .  They  keep  up  the  value  of 
the  paper." — Id.,  page  14^3. 

The  result  was  that  they  guaranteed  the  part  payment 
of  both  the  repudiated  debts  of  Congress  and  of  the  States, 
to  the  speculators  and  stock  jobbers. 

The  second  contention  was  over  the  clause  giving  Con- 
gress the  right  and  power  to  emit  bills  of  cretlit.  This 
po\\  cr  had  been  given  Congress  under  the  Articles  of  Con- 
federation, but  was  not  allowed  to  be  exercised  by  the  money 
power  to  the  extent  of  making  them  legal  tender,  because 
they  wanted  to  make  a  condition  of  affairs  that  would  force 
Congress  to  charter  a  bank. 

It  was  not  to  the  interest  of  the  hard-nionev  faction  ever 


94  The  Legal-Tender  Problem 

to  recognize  this  right,  or  accede  the  power  to  the  Govern- 
ment to  issue  a  full  legal-tender  paper  money  direct  to  the 
people.  They  therefore  condemned  the  theory  of  paper 
issues  by  Congress,  and  cited  the  experience  of  the  Con- 
tinental Congress,  in  their  resistance  to  the  grant  of  such 
power  by  either  the  States  or  the  General  Government. 

The  warfare  against  paper  money  is  no  modern  fight, 
as  will  appear  from  the  citations  from  speeches  made  in  the 
Constitutional  Convention  upon  the  motion  of  Gouverneur 
Morris,  of  Pennsylvania,  to  strike  out  of  the  report  of  the 
"  Committee  on  Detail,"  the  clause  granting  Congress  the 
right  and  power  to  emit  bills  on  the  credit  of  the  United 
States. 

Air.  Aladison  asked  "  if  it  would  not  be  sufficient  to  pro- 
hibit the  making  them  a  tender?"  "This  will  remove,"  he 
said,  "the  temptation  to  emit  them  with  unjust  views; 
and  promissory  notes  in  that  shape  may,  in  some  emer- 
gencies, be  best." — "Madison  Papers,"  Vol.  j,  page  1344. 

Mr.  Gouverneur  Morris  said,  "  Striking  out  the  words 
will  leave  room  still  for  notes  of  a  responsible  minister, 
which  will  do  all  the  good  without  the  mischief.  .  .  .  The 
monied  interest  will  oppose  the  plan  of  Government,  if  paper 
emissions  he  not  prohibited." — Id.,  page  1344. 

Mr.  Ellsworth,  of  Connecticut,  "  thought  this  a  favor- 
able moment  to  shut  and  bar  the  door  against  paper  money. 
The  mischief  of  the  various  experiments  which  had  been 
made,  were  now  fresh  in  the  public  mind,  and  had  excited 
the  disgust  of  all  the  respectable  part  of  America.  By 
withholding  the  power  from  the  new  Government,  more 
friends  of  influence  would  be  gained  to  it  than  by  almost 
anything  else.  Paper  money  can  in  no  case  be  necessary. 
Give  the  Government  credit,  and  other  resources  will  offer. 
The  power  may  do  harm,  never  good." 


Constitutional  Convention  95 

Mr.  Wilson,  of  Pennsylvania :  "  It  will  have  a  most  salu- 
tary inrtuence  on  the  credit  of  the  United  States  to  remove 
the  possibility  of  paper  money.  This  expedient  can  never 
succeed  whilst  its  mischiefs  are  remembered.  And  as  long 
as  it  can  be  resorted  to,  it  will  be  a  bar  to  other  resources." 

Mr.  Read,  of  Delaware,  "  thought  the  words,  if  not 
stricken  out,  would  be  as  alarming  as  the  mark  of  the  beast 
in  Revelation." 

Mr.  Langdon,  of  New  Hampshire,  "had  rather  reject 
the  whole  plan  than  retain  the  three  words,  '  and  emit  bills.'  " 

Mr.  Randolph,  "notwithstanding  his  antipathy  to  paper 
money,  could  not  agree  to  strike  out  the  words,  as  he  could 
not  foresee  all  the  occasions  that  might  arise." — "Madison 
Papers,"  Vol.  3,  page  13^3. 

Mr.  Mercer,  of  Maryland,  "  was  a  friend  to  paper 
money,  though  in  the  present  state  and  temper  of  America 
he  should  neither  propose  nor  approve  such  a  measure.  He 
was  consequently  opposed  to  a  prohibition  of  it  altogether. 
It  will  stamp  suspicion  on  the  Governmeii(;  to  deny  it  a  dis- 
cretion at  this  period.  It  was  impolitic,  also,  to  excite  the 
opposition  of  all  those  who  were  friends  of  paper.  The 
people  of  property  would  be  sure  to  be  on  the  side  of  the 
plan,  and  it  was  impolitic  to  purchase  their  further  attach- 
niciit  with  the  loss  of  the  opposite  class  of  citizens." — Id., 
page  1344. 

Mr.  Luther  Martin,  of  Maryland,  said.  "  It  would  be 
improper  to  deprive  Congress  of  that  power ;  that  it  would 
be  a  novelty  unprecedented  to  establish  a  Government  which 
should  not  have  such  authority :  that  it  was  impossible  to 
look  forward  into  futurity  so  far  as  to  decide  that  events 
might  not  happen  that  should  render  the  exercise  of  such  a 
power  absolutely  necessary ;  and  that  he  doubted  whether, 
if  a  war  should  take  place,  it  would  be  possible   for  this 


96  The  Le^al-Tender  Problem 

country  to  defend  herself,  without  having  recourse  to  paper 
credit ;  in  which  case  there  would  be  a  necessity  of  becom- 
ing a  prey  to  our  enemies,  or  violating  the  Constitution  of 
our  Government." — "Secret  Proceedings  and  Debates  of  the 
Convention  of  i/S/,"  page  3j. 

The  hard-money  patriots  were  successful,  the  clause  was 
stricken  out,  and  the  power  to  emit  bills  of  credit  was  with- 
held from  Congress.  The  States  were  also  prohibited  from 
issuing  them,  and  they  succeeded  in  making  the  idea  of 
paper  issues  by  the  Government  the  worst  of  heresies,  even 
to  this  day,  although  the  war  of  1812,  the  Mexican  war,  and 
the  war  of  1861,  necessitating  their  issue,  demonstrated  the 
truth  of  Luther  Martin's  prophecy,  commended  Randolph's 
caution  in  his  inability  to  foresee  that  it  would  be  necessary, 
and  disproved  the  utterances  of  Morris  and  the  others. 

They  were  also  successful  in  securing  the  guarantee 
that  the  new  Government  would  pay  in  part  to  the  spec- 
ulators both  the  repudiated  debt  of  Congress  and  the  States ; 
and  that  gold  and  silver  shbuld  have  the  exclusive  monopoly 
of  furnishing  all  the  circulating  currency  of  this  country. 

The  Massachusetts  theory  of  finance  prevailed ;  and  when 
it  was  decided  that  no  State  should  make  anything  but  gold 
and  silver  a  legal  tender,  the  absolute  control  of  the  money 
system  of  the  entire  country  was  turned  over  to  the  owners 
of  gold  and  silver. 

All  that  was  now  needed  to  perfect  their  plans  to  com- 
mand entire  control  of  the  resources  of  the  country,  through 
legislation,  was  the  aid  of  banks  having  the  power  to  issue 
notes.  To  enable  them  to  do  this,  they  must  secure  to  Con- 
gress the  power  to  grant  charters  of  incorporation.  There- 
fore, Mr.  Madison,  who  seems  to  have  been  the  friend,  or 
dupe  in  some  instances,  of  the  moneyed  class,  presented, 
among  the  powers  he  wished  granted  to  Congress,  one  to 


Constitutional  Convention  97 

grant  charters  of  incorporation  in  cases  when  the  pubHc 
good  may  require  them,  and  the  authority  of  a  single  State 
may   be   incompetent. 

The  committee  left  out  said  power  in  their  report ;  and 
when  the  report  was  under  discussion,  a  motion  was  made 
to  add  the  power  "to  provide  for  cutting  canals  when  deemed 
necessary." 

Mr.  Madison  again  endeavored  to  secure  to  Congress 
the  power  to  grant  charters  of  incorporation,  by  suggesting 
an  enlargement  of  the  motion  into  a  power  "  to  grant  char- 
ters of  incorporation  where  the  interest  of  the  United  States 
might  require,  and  the  legislative  provisions  of  individual 
States  may  be  incompetent." — "Madison  Papers,"  Vol.  3, 
page  1576. 

Even  Mr.  King,  of  Massachusetts,  at  that  time  was  sat- 
isfied with  what  had  been  secured,  and  the  experience  with 
banks  during  the  Revolution,  for  in  his  speech  he  said :  — 

"The  States  will  be  prejudiced,  and  divided  into  parties. 
Tn  Philadelphia  and  New  York  it  will  be  referred  to  the 
establishment  of  a  bank,  which  has  been  a  subject  of  con- 
tention in  those  cities.  In  other  cities  it  will  be  referred  to 
the  mercantile  monopolies." — Id.,  page   1577. 

"  Col.  Mason  was  for  limiting  the  power  to  canals.  He 
was  afraid  of  monopolies  of  every  sort." —  Id.,  page  I577- 

Mr.  Madison's  amendment,  as  restricted  by  Mr.  Mason, 
was  defeated  by  a  vote  of  eight  States  to  three,  so  great  was 
the  dread  of  the  baneful  eflfects  and  influence  of  corporations 
upon  the  future  development  of  the  Government. 

The  Constitution,  giving  gold  and  silver  the  sole  right 
and  privilege  to  circulate  as  money  or  pay  debts,  and  with- 
holding from  Congress  the  right  or  power  to  grant  charters 
of  incorporation  or  to  emit  bills  of  credit,  was  approved 
by  the  people,  and  became  the  supreme  law  of  the  land. 
7 


98  The  Legal-Tender  Problem 

This  legal-tender  monopoly  given  to  gold  and  silver  was 
further  strengthened  by  prohibiting  the  States  from  emit- 
ting bills  of  credit,  and  by  requiring  a  vote  of  three  fourths 
of  all  the  States  to  alter  or  amend  the  Constitution. 

The  hard-money  party,  looking  only  to  the  immediate 
future,  realized  that  the  collection  of  their  debts,  when  gold 
and  silver  were  the  only  circulating  currency,  would  operate 
to  transfer  the  greater  part  of  the  property  of  the  country 
into  their  hands.  With  not  more  than  ten  millions  of  specie 
in  the  country,  and  with  a  large  war  debt  to  be  paid,  in  addi- 
tion to  the  private  debts  of  three  millions  of  people,  and  the 
demand  for  money  to  carry  on  business,  a  Constitution  lim- 
iting the  circulating  currency  to  gold  and  silver  was  adopted. 

It  was  essentially  incumbent  upon  the  new  Government 
at  that  time,  after  the  national  and  State  issues  were  made 
worthless,  to  furnish  the  money  necessary  to  enable  the 
people  to  recuperate  from  the  debt  and  ravages  of  the  long 
war,  in  order  that  by  thrift,  enterprise,  and  economy  they 
might  be  enabled  to  save  from  their  creditors  the  little  they 
had  left.  On  the  contrary,  however,  they  were  restricted 
by  the  terms  of  the  Constitution  to  $3.33  1/3  or  less  per 
capita,  until  more  gold  and  silver  came  from  Europe,  or 
was  brought  from  the  mines. 

Such  governmental  indifference  to  the  prosperity  and 
welfare  of  the  people,  and  such  tender  consideration  for  the 
moneyed,  or  creditor,  class,  tended  in  a  great  degree  to  bring 
disaster  and  deprivation  upon  the  country. 


VIII 

Statement  of  the  Debt,  and  Provision    for  Its 

Payment 

Bv  the  adoption  of  the  Constitution,  June  2,  1788,  the 
United  States  of  America  was  launched  upon  its  career  as 
one  of  the  nations  of  the  world.  It  went  into  operation  as  a 
Government  with  the  inauguration  of  George  Washington 
as  president,  April  30,  1789. 

The  following  statement,  from  "  History  of  the  Cur- 
rency of  the  Country,"  page  20,  shows  the  indebtedness 
proper  of  the  United  States  at  the  organization  of  the  pres- 
ent form  of  Government,  including  arrearages  of  interest 
to  January  i,  1790:  — 

Loan  from  Farmer's  General  of  France,  balance $  153.688.89 

French  loan  of  18,000,000  livres 3,267,000.00 

Loan  from   Spain  in  1781 174,017.13 

French  loan  of  10,000,000  livres 1,815.000.00 

Holland  loan  of  1782 2,000,000.00 

Jrrench  loan  of  6,000,000  livres 1,089.000.00 

Holland   loan   of  1784 800,000.00 

Holland   loan  of   1787 • 400,000.00 

Holland    loan    of    1788 400,000.00 

Total  principal  of  foreign  debt $10,000,000.00 

Balance  due  France  for  militarj^  supplies 24,332.86 

Arrearap:es  of  interest  to  January  i,  1790 1,760,279.08 

Debt  due  foreign  officers  in  Revolutionary  war 186,988.97 

Arrearages  of  interest  to  January  i,  1790 1 1,219.32 

Total  foreign  debt  and  interest $12,081,524.06 

99 


loo  The  Legal-Tender  Problem 

Principal  of  the  domestic  debt   (estimated) $28,858,180.65 

Arrearages  of  interest  to  January  i,  1790  (estimated)..   11,398,621.80 

Total  domestic  debt  and  interest  (estimated) $40,256,802.45 

Add  arrearages  and  claims  outstanding  against  the  late 

Government,    since    paid 450.395-52 

Making  the  total  debt,  January  i,  1790 $52,788,722.03 

The  Treasury  Department  was  created  by  act  of  Con- 
gress, September  2,  1789,  and  on  the  eleventh  of  the  .month 
Alexander  Hamilton  was  appointed  secretary.  There  was 
no  money  in  the  treasury,  and  the  secretary  was  forced  to 
borrow  on  his  own  responsibility  until  such  time  as  the 
''evenue  from  duties  on  imports  and  tonnage  began  to 
come  in. 

In  obedience  to  a  resoltition  of  the  House  of  Represent- 
atives, passed  September  21,  1789,  Secretary  Hamilton,  on 
January  9,  1790,  made  a  report  of  the  debts  of  the  old  Gov- 
ernment, and  those  of  the  several  States,  and  submitted  a 
plan   for  supporting  the  public  credit. 

His  recommendations  were  adopted  and  embodied  in  the 
Act  of  August  4,  1790.  This  act,  after  setting  aside  six 
hundred  thousand  dollars  to  defray  the  expenses  of  the  Gov- 
ernment, appropriates  in  — 

Section  i.  All  revenue  in  excess  of  this  amount  to  the 
payment  of  the  interest  and  principal  of  the  foreign  debt 
that  is  now  or  may  hereafter  be  contracted. 

Section  2  authorizes  the  president  to  borrow  a  sum  not 
exceeding  twelve  million  dollars  to  be  used  in  paying  the 
arrears,  instalments,  and  principal  of  the  foreign  debt. 

Section  3.  That  a  loan  to  the  full  amount  of  the  domes- 
tic debt  be,  made ;  that  books  be  opened  for  subscriptions  to 
said  loans,  and  that  said  subscriptions  should  be  payable  in 
certificates    heretofore    issued    by    authority    of    Congress, 


Statement  of  Debt  loi 

according  to  their  specie  value,  and  interest  to  be  computed 
on  all  those  bearing  interest  to  December  31,  1790. 

And  the  bills  of  credit  issued  by  the  authority  of  the 

United    States   in  Congress  assembled,   at  the   rate  of  one 

'hundred  dollars  in  the  said  bills,  for  one  dollar  in  specie. 

Section  4  provides  that  certificates  shall  be  issued  to 
the  subscribers  to  the  loan  as  follows :  Two  thirds  in  six- 
per-cents,  and  one  third  in  deferred  six-per-cent  certificates. 

Section  5  provides  that  to  those  subscribers  to  the  loan 
who  paid  in  the  interest  of  the  loan  of  the  domestic  debt 
computed  to  December  31,  1790,  three-per-cent  certificates 
are  to  be  issued. 

Sections  13,  14.  and  15  provide  for  a  loan  of  twenty- 
one  million  and  five  hundred  thousand  dollars  to  pay  the 
debts  of  the  respective  States,  and  that  subscriptions  to 
said  loan  are  payable  in  the  principal  and  interest  of 
the  certificates,  or  notes  issued  by  the  respective  States 
prior  to  January  i,  1790,  in  the  prosecution  of  the  war  and 
in  defense  of  the  United  States,  as  follows :  four  ninths  in 
six-per-cents,  two  ninths  in  deferred  six-per-cents,  and  one 
third  in  three-per-cents. 

The  number  of  six-per-cent  and  three-per-cent  certifi- 
cates issued  will  show  the  amount  paid  by  the  new^  Govern- 
ment in  assuming  the  domestic  debt  of  the  Continental  Con- 
gress, the  debts  of  the  States,  and  the  debts  of  the  Confed- 
eration —  principally  owned  by  the  bank  and  the  speculators. 

The  amount  of  six-per-cents  issued  was $30,088,397.75 

The  amount  of  deferred  six-per-cents  issued  was 14,649.328.76 

The  amount  of  three-per-cents  issued  was i9,7i9,-37-39 

Total    amount    issued $64,456,963.90 

Tlie  amount  issued  to  pay  debt  of  the  States 18,271,786.47 

The  amount  issued   to  pay  the   Domestic   debt   of 

Congress    $46,185,177.43 


102 


The  Legal-Tender  Problem 


Inasmuch  as  Congress  borrowed  large  sums  of  foreign 
nations,  the  payment  of  which  was  completed  by  the  issu- 
ance of  $12,000,000  in  bonds  for  that  purpose,  and  the  Con- 
tinental Congress  issued  bills  of  credit  to  the  amount  of 
$359,547,027.35  (according  to  the  highest  estimate,  that  of 
the  register  of  the  treasury  of  1790),  which,  at  100  for  i, 
were  redeemable  by  the  issue  of  $3,595,470.27  of  the  six- 
per-cents  and  three-per-cents,  no  large  amount  of  six-per- 
cent and  three-per-cent  certificates  would  be  issued  to  redeem 
at  specie  value  the  other  evidences  of  debt  enumerated  under 
Section  3,  that  was  not  the  property  of  the  bank,  and  yet 
there  is  $64,456,963.90  of  six-per-cents  and  three-per-cents 
to  be  accounted  for. 

It  is  evident  that  this  sum,  less  the  amount  of  six-per- 
cents  and  three-per-cents  that  were  issued  to  redeem  the 
other  evidences  of  debt  enumerated  in  Section  3,  owned  by 
the  officers,  soldiers,  and  contractors,  represents  the  profits 
of  the  hard-money  faction  —  the  bloodsuckers,  as  they  were 
denominated  by  Mr.  Butler,  of  South  Carolina.  It  is  also 
evident,  inasmuch  as  gold  and  silver  had  since  1781  been 
the  only  circulating  currency,  or  legal  tender,  that  their  own- 
ers had  through  the  necessity  and  demand  for  their  use,  and 
through  the  agency  of  the  bank,  acquired  at  their  own 
price  the  greater  portion  of  the  $64,456,963.90  of  six-per- 
cent and  three-per-cent  certificates  issued  to  pay  the  debts 
of  the  Continental  Congress,  the  States,  and  the  Confed- 
eration. 

The  payment  of  this  sum  is  further  secured  in  Sections 
20,  21,  and  22  by  appropriating  all  the  money  that  may  arise 
under  the  revenue  laws  that  have  been  or  may  be  passed 
in  the  session  to  the  purposes  set  out  in  said  act,  and  pledg- 
ing that  all  such  money  shall  be  reserved  and  inviolably 
pledged  for  this  purpose,  and  shall  not  be  diverted  until 


Statement  of  Debt  103 

the  principal  aiul  interest  are  both  paid ;  and  also  pledged 
all  the  proceeds  of  the  sale  of  the  lands  in  the  western  terri- 
tory now  belonging,  or  that  may  hereafter  belong,  to  the 
United  States. 

The  determination  of  the  hard-money  faction  to  remain 
on  the  specie  basis  which  Massachusetts  had  found  so 
advantageous,  and  the  fight  against  the  Continental  cur- 
rency which  had  so  seriously  impeded  the  progress  of  the 
Revolution,  bore  down   all  opposition. 

In  desperation  and  total  disregard  of  all  consequences 
it  precipitated  such  a  state  of  afifairs  during  the  war  that 
the  people  were  forced  to  lose  all  the  circulating  currency 
that  had  been  issued,  and  accept  in  lieu  thereof  the  bank- 
ing scheme  of  1781,  which  Mr.  Madison  writes  was  forced 
upon  Congress. 

It  has  heretofore  been  shown  how  tireless  and  indefat- 
igable the  financiers  were  after  the  war  in  their  endeavors 
to  secure  the  payment  by  a  new  Government  of  the  debts 
contracted  during  and  subsequent  to  the  war,  solely  because 
they  were  the  ow^ners  and  holders  of  most  of  the  evidence 
of  this  debt.  They  were  not  satisfied  with  securing  the 
payment  of  the  sums  loaned  by  them  from  1781  to  the 
passage  of  the  act,  but  made  provision  to  collect  $21,500,000 
for  the  surrender  of  the  worthless  State  issues,  and  $3,595,- 
470.27  for  the  surrender  of  the  worthless  Continental  issues. 


IX 

The  First  Bank  of  the  United  States 

The  effort  of  the  hard-money  faction  was  so  successful 
that  it  was  overreaching  in  its  effects,  and  forced  the  execu- 
tion, on  the  part  of  the  Government,  of  the  very  poHcies 
that  had  been  inhibited,  and  withheld  from  Congress,  in 
forming  the  Constitution. 

The  specie  basis  which  had  been  irrevocably  secured,  as 
was  supposed,  by  the  inhibition  to  the  States  to  emit  bills  of 
credit,  or  to  make  anything  a  legal  tender  except  gold  and 
silver,  and  by  withholding  from  Congress  the  right  or  power 
to  emit  bills  on  the  credit  of  the  Government,  or  to  grant 
charters  of  incorporation,  was  soon  found  to  be  insufficient 
to  supply  the  money  necessary  to  preserve  the  life  of  the 
nation,  to  say  nothing  of  the  welfare  and  prosperity  of  the 
people. 

In  this  dire  contingency,  and  under  the  acknowledged 
stress  of  an  insufficient  number  of  mediums  of  payment, 
the  Government  was  forced  to  take  some  action  to  furnish 
the  currency  so  essentially  needed. 

Recalling  the  efficiency  and  the  value  in  use  of  the  credits 
of  the  Bank  of  Venice  and  the  notes  of  the  colonists,  it  is 
evident  that  if  the  Constitution  had  been  so  framed  that  gold 
and  silver  had  only  been  given  the  sole  right  to  purchase 
the  paper  legal  tenders  of  the  Government,  the  domestic 
debt  could  have  been  paid  by  the  issue  of  $65,000,000  in 
legal-tender  notes  and  the  foreign  debt  by  the  issue  of  $12,- 
000,000  in  bonds.  The  two  desirable  and  essential  requisites 
104 


The  First  Bank  of  the   United  States      105 

—  the  payment  of  the  debts  and  the  issue  of  a  full  supply  of 
legal-tender  currency  —  would  have  been  accomplished. 

The  fact  that  the  treasury  notes  would  have  been  legal 
tenders  in  the  payment  of  all  debts  public  and  private 
throughout  the  United  States,  would  have  insured  their  par 
value  until  they  were  deprived  of  this  quality,  without  any 
provision  for  their  redemption ;  and  if  it  had  been  provided, 
in  the  event  the  Government  should  ever  see  proper  to 
deprive  them  of  this  quality,  that  they  should  be  redeemed 
in  six-per-cent  bonds,  this  would  have  protected  them  from 
depreciating  in  value  from  fear  of  any  such  action.  Such 
financial  lesfislation  would  have  been  in  the  interest  of  the 
people,  as  well  as  in  the  interest  of  the  creditors  and 
wealthy    class. 

The  creditors  and  the  bankers  w^ould  not  have  been 
enabled  to  so  manage  and  manipulate  the  Government  that 
they  could  live  off  the  six-per-cent  and  three-per-cent  issues, 
as  non-producers  and  drones,  a  scourge  upon  the  body  pol- 
itic, haunting,  influencing,  and  corrupting  the  halls  of  legis- 
lation throughout  all  the  future. 

Notwithstanding  all  this,  the  fact  that  the  hard-money 
faction  had  overreached  itself,  and  the  issue  of  additional 
money,  either  by  treasury  notes  or  chartering  a  bank  with 
the  risfht  to  issue  notes,  was  a  necessitv,  that  faction  was  so 
influential  that  it  forced  the  Government  to  abandon  the  idea 
of  issuing  treasury  notes,  and  to  charter  a  bank  known  as  the 
Bank  of  the  United  States.  This,  the  "  First  Bank  of  the 
United  States,"  was  chartered  by  Congress  February  25, 
1 79 1,  notwithstanding  the  power  to  grant  a  charter  of  incor- 
poration was  withheld  from  Congress ;  and  this  bank  was 
given  the  power  to  issue  notes,  notwithstanding  the  exercise 
of  such  a  power  was  withheld  from  Congress  in  the  refusal 
to  give  it  power  to  emit  bills  on  the  credit  of  the  Government. 


io6  The  Legal-Tender  Problem 

What  must  be  thought  of  a  system  of  finance  which  so 
soon  proved  so  defective  that  the  Constitution  had  to  be, 
in  two  of  its  most  material  inhibitions,  set  aside  and  over- 
ridden in  the  first  five  years  of  the  existence  of  the  Govern- 
ment? This  unconstitutional  act  of  Congress  is. excusable 
to  some  extent  when  the  necessity  for  additional  currency 
is  considered. 

If  there  had  been  no  abuse  by  the  Supreme  Court  of  the 
power  conferred  upon  it,  the  bank  might  have  flourished, 
and  relieved  the  distress  by  the  issue  of  notes  until  the 
development  of  the  gold  and  silver  mines,  and  the  importa- 
tion of  gold  and  silver,  furnished  a  full  supply  of  money. 
Congress  could  then  have  repealed  the  act  granting  the 
charter,  or,  if  it  had  expired  by  limitation,  refused  to  grant 
another  charter,  on  the  ground  that  it  was  unconstitutional, 
and  thus  have  preserved  the  integrity  of  that  instrument  in 
that  particular.  Doubtless  the  members  of  that  Congress 
recalled  the  action  of  the  Continental  Congress  in  passing 
a  similar  measure,  and  felt  assured  that  when  a  full  supply 
of  gold  and  silver  had  removed  the  necessity  for  the  further 
continuance  of  the  unconstitutional  institution,  a  subsequent 
Congress  would  do  away  with  it ;  and,  if  Congress  should 
prove  derelict,  the  Supreme  Court  would  decide,  if  the  ques- 
tion came  before  it,  that  the  grant  of  the  charter  was  in 
excess  of  the  powers  of  Congress. 

The  imperative  necessity  for  additional  currency  was 
officially  made  known  to  Congress  by  the  secretary  of  the 
treasury  in  April,  1791.  He  stated  that  the  nation  could 
not  depend  upon  coin  for  its  circulating  currency  —  that 
ten  millions  of  coin  could  not  be  collected  in  the  country.  It 
was  then  urged,  as  there  was  not  enough  for  the  business 
of  the  country,  that  it  was  the  duty  of  Congress,  since  it 
was  entrusted  by  the  Constitution  with  the  power  "  to  make 


The  First  Bank   of  the   United  States      107 

money  and  to  regulate  the  value  thereof,"  to  issue  such 
paper  money  clothed  with  the  name  and  authority  of  the 
United  States  as  would  supply  the  place  of  hard  money 
which  could  not  be  obtained. 

It  seems  strange,  since  it  was  so  soon  demonstrated  that 
the  avaricious  and  unscientific  system  of  finance  was  totally 
unfitted  to  subserve  the  purpose  for  which  it  was  intended, 
and  Congress  was  called  upon  to  take  action  under  the  gen- 
eral power  "  to  make  money  and  regulate  the  value  thereof," 
that  the  qualities  and  characteristics  of  money  were  not  more 
closely  analyzed. 

When  it  is  recalled  that  money,  or  a  medium  of  ex- 
change, is  a  growth  arising  out  of  the  necessity  of  expedi- 
ting and  making  easy  the  exchange  of  products,  and  unless 
the  system  adopted  subserves  this  purpose,  that  it  is  an 
imposition  upon  the  people,  it  becomes  evident  that  the  specie 
basis  of  the  United  States,  which  was  complained  of  by  the 
secretary  of  the  treasury,  should  have  been  abandoned,  and 
not  merely  supplemented,  as  was  done.  This  becomes  more 
apparent  when  an  analysis  shows  what  elements  of  value 
there  are  in  money,  and  how  easy  it  is  to  be  led  into  the 
adoption  of  a  false  system  when  avarice  and  greed  are  per- 
mitted to  have  any  influence  in  formulating  the  plan. 

Money,  or  a  medium  of  exchange,  has  two  separate  and 
distinct  elements  of  value ;  and  it  is  essential  to  know  this, 
and  what  they  are,  before  the  difference  between  one  system 
of  finance  and  another  can  be  appreciated. 

The  first  element  of  value  in  money  is  the  value  of  the 
fiat  of  Government  that  forces  every  one  to  accept  it  in  pay- 
ment as  a  solv^it  of  debt,  at  its  labor  expression  of  value ; 
and  the  second  clement  of  value  is  the  value  of  the  com- 
modity upon  which  the  fiat  of  the  Government  is  stamped. 
The  value  of  the  commoditv  out  of  which  the  legal-tender 


io8  The  Legal-Tender  Problem 

money  is  made,  varies,  as  does  every  other  commodity,  with 
the  demand  for  and  supply  of  that  commodity ;  but  the  legal 
tender  or  labor  value  is  one  hundred  cents  for  each  dollar 
as  long  as  it  is  a  legal  tender.  The  value  of  the  commodity 
as  long  as  it  is  a  legal  tender,  is  dormant,  and  held  in  sub- 
jection to  the  legal  tender  or  labor  value  of  one  hundred 
cents. 

It  is  axiomatic  that  this  primary  or  labor  element  of  value 
impressed  upon  the  commodity  by  the  stamp  of  the  Govern- 
ment, making  it  legal  tender,  would  be  the  same  as  to  every 
substance  which  may  be  endowed  with  the  exclusive  priv- 
ilege of  being  used  as  legal  tender.  Therefore,  the  only  dif- 
ference there  could  possibly  be  in  the  adoption  of  the  one 
or  the  other  substance  to  be  used  as  money,  would  be  the 
difference  in  the  cost  of  the  commodity,  if  the  money  is 
issued  bv  the  Government. 

This  first  cost,  the  cost  of  the  commodity,  is  always  paid 
by  the  people,  and  is  an  unnecessary  expense ;  but  when,  in 
addition,  they  are  forced  to  pay  the  owner  of  the  commodity 
the  value  of  the  one  hundred  cents  that  is  stamped  upon  it 
by  the  Government  fiat,  and  which  value  arises  from  the 
incessant  use  the  people  are  compelled  by  the  law  of  legal 
tender  to  make  of  it,  the  imposition  becomes  a  financial  and 
political  crime. 

When  the  Government  issues  legal-tender  notes  to  the 
people  at  their  labor  expressions  of  value,  it  is  at  the 
minimum  cost  to  them  ;  for  notwithstanding  they  give  to 
the  Government  a  full  equivalent  for  every  dollar  they 
receive,  they  get  it  back  when  they  part  with  it  at  the  same 
expression  of  value  at  which  they  received  it.  When  the 
Government  issues  gold  coins,  it  is  at  the  maximum  of  cost 
to  the  people. 

In  the  case  of  gold,  the  Government  receives  the  gold  of 


The  First  Bank  of  the   United  States      109 

the  individual,  mints  it  into  coin,  and  returns  the  coin,  en- 
hanced in  vakie  by  the  legal-tender  quality  given  it,  which 
forces  the  people  to  i)urchase  them  from  the  owner  at  their 
enhanced  value.  In  the  case  of  gold  all  the  value  of  legal 
tender  goes  into  the  pockets  of  the  owner  of  the  metal,  and 
no  value  whatever  goes  into  the  treasury  for  the  benefit  of 
the  people ;  and  when  the  owner  of  the  gold  parts  with  the 
coin,  he  has  virtually  sold  his  metal  for  the  enhanced  value 
given  it  by  legal  tender.  The  owner  of  the  metal  always 
refuses  to  part  with  it  for  even  the  enhanced  value,  but 
endeavors  to  retain  it.  and  issues  through  the  agency  of 
banks  three  or  more  dollars  of  paper  for  every  dollar  of 
metal,  and  thus  trebles  the  value  of  his  metal,  or  the  usu- 
fruct arising  therefrom. 

The  one  is  a  pure  financial  system,  and  its  merit  is  based 
upon  its  ability  to  subserve  in  the  highest  degree  the  pur- 
pose for  wdiich  it  was  intended ;  viz.,  the  easy  and  friction- 
less  exchange  of  products,  and  at  the  same  time  in  great 
part  defray  the  expenses  of  the  Government,  thereby  saving 
the  people  from  much  of  the  burden  of  taxation,  and  from 
the  distress  of  recurring  periods  of  expansion  and  contrac- 
tion. The  other  is  an  avaricious  abuse  of  a  pure  and  scien- 
tific system,  in  that  it  always  fails  to  subserve  the  purpose 
for  which  it  was  intended ;  abandons  the  country  and  the 
people  in  every  danger ;  produces  periods  of  depression  and 
loss  by  corrupt  contraction,  or  going  to  other  countries  for 
greater  profit ;  and  finally  and  inevitably  gathers  to  the  own- 
ers of  the  metal  the  entire  wealth  of  the  country. 

The  history  of  the  finances  of  the  United  States  is  a  his- 
tory of  the  subterfuges  and  corruption  practised  upon  the 
people,  to  keep  them  from  adopting  the  one  system,  and 
driving  the  other  out  of  contemplation. 

The  specie  basis  adopted  by  the  Constitution  having  so 


no  The  Legal-Tender  Problem 

soon  proved  worthless,  it  would  very  naturally  be  supposed 
that  the  issue  of  notes  by  the  government  at  their  labor 
expressions  of  value,  would  now  be  made,  to  give  the  people 
and  the  nation  the  relief  that  was  so  sorely  needed ;  but  the 
hard-money  faction  in  Congress  was  too  powerful  for  any 
such  action  to  be  taken. 

The  power  to  emit  bills  on  the  credit  of  the  Government 
was  withheld  from  Congress,  and  they  did  not  intend  to 
permit  any  violation  of  that  instrument  which  would  prove 
detrimental  to  their  interests.  They  therefore  induced  Con- 
gress to  issue  the  additional  currency  through  the  agency  of 
a  bank,  with  a  capital  of  ten  million  dollars,  and  the  right 
to  issue  thirty  millions  of  notes,  all  of  which  were  made 
legal  tender  for  all  debts  of  every  description  due  the  United 
States. 

The  Government  was  to  have  two  millions  of  the  stock, 
and  individuals  were  to  subscribe  for  the  balance;  and  to 
insure  the  success  of  the  institution,  it  was  given  a  monopoly 
for  twenty  years. 

Notwithstanding  the  notes  were  issued  by  the  bank,  and 
were  redeemable  on  demand  in  gold  and  silver,  they  were 
virtually  issued  on  the  credit  cf  the  Government,  because 
they  were  received  by  the  Government  in  the  payment  of  any 
and  all  debts  due  the  Government.  By  reason  of  this  pro- 
vision, the  bank  was  enabled  to  issue  and  keep  afloat  the 
thirty  millions  of  notes  authorized,  for  the  notes  were  pre- 
ferred to  coin,  not  only  at  home,  but  in  other  countries. 
Under  the  law  all  the  Government  money  was  placed  in  the 
bank,  where  it  remained  subject  to  the  warrants  of  the 
treasurer.  The  bank  received  the  Government  revenues  and 
paid  the  Government  debts. 

In  reality  the  bank  was  the  treasury;  and  so  far  as 
finance  was  concerned,  the  bank  was  the  Government  —  all 


The  First  Bank  of  the  United  States      m 

the  coin  of  the  country  eventually  found  its  way  to  the 
bank.  The  notes  of  the  bank  being  receivable  for  twenty 
years  for  all  debts  due  the  Government,  were  received  in 
all  transactions,  private  as  well  as  public,  and  there  was 
little  or  no  demand  for  coin  in  business.  The  notes  circu- 
lated among  the  people,  and  the  coin  remained  in  the  bank. 

Under  this  scheme  the  hard-money  faction,  with  their 
ten  millions  of  specie  deposited  in  the  bank,  were  enabled, 
by  the  law  making  the  notes  of  the  bank  a  legal  tender  for 
public  debts,  to  issue  and  keep  afloat  three  dollars  of  paper 
for  every  dollar  of  specie  they  owned.  The  notes  of  the 
bank  were  then  loaned  to  the  people  at  such  rates  of  interest 
as  the  bank  saw  fit  to  exact ;  for  by  the  retirement  into  the 
bank  of  all  the  specie,  there  was  no  currency  left  to  transact 
business,  except  the  bank-notes,  and  there  would  be  no  addi- 
tional currency  for  the  next  twenty  years,  if  the  Constitution 
and  the  obligation  not  to  charter  another  bank  should  be 
respected. 

It  is  evident  that  the  scheme  of  the  bank  was  nothing 
but  a  legalized  process  which  authorized  the  hard-money 
faction  to  treble  or  quadruple  their  capital  by  coining  their 
credit  into  money,  so  that  they  might  receive  three  or  four 
times  the  regular  rate  of  interest  upon  their  specie. 

Through  the  instrumentality  of  banks  of  issue,  the  law 
of  legal  tender  has  the  power  to  enable  the  hard-money 
owners  to  turn  their  credit  into  currency  to  be  loaned  the 
people,  and  though  the  notes  may  theoretically  be  redeem- 
able in  specie,  every  one  knows  that  three  dollars  in  paper 
can  not  be  redeemed  with  one  dollar  in  specie.  This  con- 
stituted in  brief  the  theory  of  the  banking  system,  and  its 
success  was  dependent  upon  the  legislation  which  made  the 
bank-notes  receivable  for  public  debts ;  but  if  they  are  not 
given    the    legal-tender    quality,    the    success    of    the    bank 


112  The  Le^al-Tender  Problem 

depends  upon  the  fact  that  the  people  treat  and  use  them 
as  legal  tenders,  instead  of  presenting  them  for  redemption. 

The  banks  do  not  hesitate  to  issue  notes,  even  when  they 
are  not  legal  tenders,  and  have  no  fear  that  they  will  be 
presented  for  redemption ;  for  they  are  never  issued  until 
the  Government  has  been  influenced  to  retire  so  nmch  of 
the  currency  that  the  distress  is  such  the  people  are  glad 
to  get  the  notes  to  be  used  as  mediums  of  payment  in  order 
that  they  may  make  a  living. 

The  consciousness  of  the  hard-money  faction  that  the 
scarcity  of  currency,  made  by  legislation,  will  force  the  peo- 
ple to  use  their  bank-notes,  and  not  present  them  for  redemp- 
tion, is  the  main  theory  upon  which  laws  authorizing  bank- 
ing are  passed ;  and  a  maximum  issue  is  generally  provided 
to  keep  the  greed  and  avarice  of  individuals  from  destroy- 
ing the  scheme  by  overissue. 

By  forcing  Congress  to  ignore  the  Constitution,  and 
grant  a  charter  to  a  bank,  giving  that  bank  the  privilege  to 
emit  bills  of  credit,  the  hard-money  faction  secured  to 
themselves  the  right  to  exploit  the  nation. 

It  is  now  essential  that  the  Government  should  establish 
mints  for  the  coinage  of  money ;  that  the  proportion  of  value 
between  gold  and  silver  should  be  decided ;  that  the  language 
of  price  and  the  language  of  payment,  and  the  name  and 
value  of  coins  should  be  uniform ;  and  in  order  that  this 
might  be  done,  a  "  money  of  account "  must  be  selected  and 
enacted  into  a  law. 


"Money  of  Account'' 

To  demonstrate  the  necessity  that  existed  for  the  estab- 
lishment of  a  "  money  of  account,"  attention  need  only  be 
called  to  the  fact  that  the  population  consisted  of  people 
speaking  the  English,  German,  French,  Italian,  Portuguese, 
and  other  European  languages,  and  that  in  their  business 
transactions  and  trades  each  used  his  own  language  and  the 
"  money  of  account  "  of  his  own  country  to  price  his  prod- 
ucts. To  a  great  extent,  trade  between  people  of  the  same 
State  and  of  different  States  was  accompanied  with  the  same 
difficulty  as  trades  are  now  with  Germany  or  France. 

In  order  that  an  American  may  appreciate  and  under- 
stand the  value  that  a  German  is  placing  on  his  wares  when 
stated  m  the  "  money  of  account "  of  Germany,  he  has  to 
go  through  the  arithmetical  calculation  or  process  of  redu- 
cing the  German  expressions  of  value  to  dollars,  dimes,  and 
cents.  On  the  other  hand,  the  German,  to  appreciate  and 
understand  the  value  that  an  American  is  asking  for  his 
wares  when  stated  in  American  expressions  of  value,  has  to 
reduce  them  to  German  "  money  of  account."  Though  the 
American  may  have  no  idea  of  the  value  a  German  is  putting 
on  his  goods  when  they  are  priced  in  the  German  "  money 
of  account,"  and  can  not  determine  whether  or  not  he  is 
willing  to  give  that  price  for  them,  he  knows  instantly  when 
he  has  gone  through  the  mathematical  process  of  reducing 
the  German  expressions  of  value  to  their  equivalent  value  in 
dollars,  dimes,  and  cents. 

It  is  not  necessary   that  the  actual,  or  metal,   dollars, 

8  113 


114  The  Legal-Tender  Problem 

dimes,  and  cents  be  seen  by  the  American  for  him  to  know 
the  value  of  the  wares  the  German  is  proposing  to  sell.  The 
mere  stating  the  amount  in  the  words  of  the  "  money  of 
account  "  gives  him  all  the  idea  of  value  that  can  be  con- 
veyed to  his  mind  much  more  fully  and  clearly  than  if  he 
was  shown  the  money,  or  coins.  For  if  shown  the  concrete 
money  he  would  still  have  an  uncertain  idea  of  its  value 
until  he  had  classified  and  counted  it  and  ascertained  its 
value  in  dollars,  dimes,  and  cents. 

It  is  evident,  then,  that  an  American  can  have  no  cor- 
rect idea  of  the  value  of  American  money  until  he  has 
reduced  the  coins  to  their  expressions  of  value  in  the 
"  money  of  account."  As  soon,  however,  as  he  has  classified 
and  counted  it,  and  knows  the  sum  total  of  the  actual  or 
concrete  dollars,  dimes,  and  cents,  he  undergoes  an  uncon- 
scious mental  calculation,  and  becomes  intensely  conscious 
of  the  value  of  the  pieces  of  money. 

A  mental  calculation  similar  to  the  one  that  assures  him 
of  the  value  of  the  pieces  of  money,  when  he  has  ascertained 
the  sum  total  of  the  dollars,  dimes,  and  cents,  as  it  is  ex- 
pressed in  the  language  of  "  money  of  account,"  assures  him 
of  the  value  the  German  is  placing  on  his  wares,  as  soon  as 
he  has  reduced  the  German  expressions  of  value  to  their 
equivalent  value  in  dollars,  dimes,  and  cents. 

This  idea  of  value  conveyed  to  the  mind  of  a  person  by 
the  language  of  his  country's  "  money  of  account  "  is  an 
abstraction  or  a  concept.  It  arises  as  a  growth  of  the 
relation  of  the  value  of  products  to  each  other,  crystal- 
lized into  language ;  and  that  language  is  "  the  language 
of  price,  of  books  of  account,  of  prices  current ;  it  is  the 
mode  of  expression  employed  in  all  money  securities,  to 
denote  the  amount  for  which  they  are  given ;  and.  in  fine,  it 
is  the  very  language  of  finance." 


''Money  of  Account"  115 

Therefore,  when  a  Government  undertakes  to  mint  coins, 
it  ascertains  the  quantity  of  metal  that  is  the  vakie  of  the 
concept  that  the  name  to  be  given  the  coin  means,  or  con- 
veys to  that  people.  Originally,  and  until  late  years,  there 
was  no  piece  of  metal  in  England  known  or  called  the 
pound ;  and  yet  Englishmen  have  no  other  idea  of  value 
than  such  as  is  conveyed  by  the  word  "  pound,"  and  every 
piece  of  money  they  have  ever  had  only  conveyed  the  idea 
of  value  determined  from  its  relation  to  the  idea  of  value 
conveyed  by  the  use  of  the  word  "  pound." 

The  English  sovereign,  when  coined,  was  said  to  be  of 
the  value  of  one  pound ;  and  as  the  metal  out  of  which  the 
sovereign  was  made  varied  in  value,  so  has  the  sovereign. 
This  has  been  shown  by  its  being  below  or  above  par,  the 
par  value  being  the  idea  of  labor  value  conveyed  by  the 
word  "  pound." 

"  Money  of  account  "  is,  therefore,  that  growth  of  the 
intelligence  of  a  people  which  finally  crystallizes  their  ideas 
of  the  relative  values  of  products  to  each  other,  considering 
the  labor  that  has  been  expended  upon  the  products,  into 
words  that  accurately  express  the  value  of  the  labor  ex- 
pended. 

As  Colwell,  in  his  "  Ways  and  Means  of  Payment,"  so 
well  states,  "  To  leave  '  money  of  account '  out.  when  the 
whole  subject  of  currency,  banking,  and  credit  is  involved, 
is  like  leaving  arithmetic  out  of  mathematics. 

'"It  is  for  the  want  of  attention  to  the  real  agency  of 
'  money  of  account,'  that  such  expressions  as  the  power  of 
money  are  often  used,  when  only  the  power  of  credit  is 
intended. 

"  When  a  merchant  inquires  the  price  of  a  hundred  bags 
of  coffee,  learns  the  rate,  and  makes  the  purchase,  giving  his 
note   for  the  amount,  money  has  exercised  neither  power 


ii6  The  Legal-Tender  Problem 

nor  influence  in  the  transaction.  It  was  the  power  of  credit 
which  made  the  purchase,  and  the  power  of  the  '  money  of 
account '  which  enabled  the  parties  to  understand  each  other, 
make  the  transaction,  and  take  the  note  for  the  amount  of 
the  purchase.  The  greatest  power  in  the  commercial  world 
is  commercial  integrity,  and  the  confidence  of  credit  which 
it  inspires.  This  is  the  power  which  moves  nine  tenths  of 
the  commodities  found  in  the  channels  of  trade  and  industry. 

"  JVIoney,  by  which  we  intend  coins  of  gold  or  silver,  is 
neither  a  standard  of  value,  a  measure  of  value,  nor  a  repre- 
sentative of  value. 

"  The  precious  metals  are  commodities  of  value,  and 
do  not,  of  course,  lose  that  quality,  though  they  gain  another 
by  being  coined." 

By  coinage  and  the  law  of  legal  tender,  they  become 
standards  of  payment. 

"  Every  man  may,  by  law,  claim  payment  in  coins ;  that 
is,  for  any  commodity  previously  sold,  for  any  debt  due, 
every  person  may  exact  the  expressed  equivalent  in  the 
commodity  of  gold  and  silver  assayed  and  coined  at  the 
mint  in  denominations  agreeing  with  the  '  money  of  ac- 
count,' "  because  it  is  made  a  solvent  of  debt  by  the  law  of 
legal  tender.  "All  debts  are  thus  payable;  and  it  is  only 
because  the  parties  agree  to  other  modes  of  payment  that 
all  debts  are  not  thus  paid." 

In  some  instances,  however,  it  is  due  to  the  fact  that  the 
Government  limits  the  legal  tender  of  the  money  issued. 

"The  men  of  trade  and  industry,  who  receive  money 
in  large  amounts  only  to  pass  it  off  in  the  same  way,  are 
more  concerned  to  escape  trouble,  risk,  and  expense  in  the 
matter  of  payment,  than  anxious  to  employ  only  gold  and 
silver  which  have  passed  through  the  mint. 

"At  the  present  time  the  precious  metals  are  employed 


"Money  of  Account"  117 

only  as  the  standard  of  payment,  or  legal  tender;  as  the 
medium  of  the  merest  retail  trade ;  as  a  reserve  or  security 
ior  their  issues  by  banks  of  circulation ;  and  as  the  medium 
of  paying  balances  of  trade  both  foreign  and  domestic  — 
all  these  together  do  not  make  five  per  cent  of  the  operations 
of  industry  and  trade  in  this  country,  or  in  Great  Britain. 
All  the  rest  is  accomplished  by  means  of  credit,  and  the 
many  processes  of  the  '  credit  system.' 

"  It  must  Jdc  a  great  and  mischievous  fallacy,  then,  to 
regard  gold  and  silver  coins  as  a  sort  of  model  medium  of 
exchange,  to  the  characteristics  and  incidents  of  which  all 
other  modes  of  interchange  must  be  made  to  correspond. 
This  is  nothing  less  than  an  attempt  to  fasten  upon  industry 
and  commerce  the  very  shackles  and  inconveniences  which 
they  have  long  been  struggling  to  cast  away. 

"  There  are  many  ways  of  making  payments  without 
using  coins,  each  of  which  may  stand  for  what  it  is  worth, 
and  be  employed  according  as  it  may  be  available,  without 
being  tortured  to  work  as  coins  would  have  been  worked,  if 
they  had  been  employed. 

"  When  two  men  of  business  deal  largely  together,  keep- 
ing the  record  in  their  books  of  account,  which  once  in  three 
months  are  balanced,  and  the  mutual  debts  thus  paid  with- 
out the  use  of  coins,  there  is  no  possible  sense  in  which  the 
mutual  payments  thus  effected  could  be  made  more  effectual 
by  any  reference  to  coins  than  by  this  simple  and  economical 
method  of  balancing  the  sums  of  the  various  entries,  debts, 
and  credits,  expressed  in  '  money  of  account,'  the  one  against 
the  'other. 

"  This  mode  of  payment  needs  no  aid  in  theory,  in  prac- 
tise, or  by  analogy,  from  any  employment  of  coins ;  but  this 
mode  of  payment  is  one  of  the  main  devices  of  the  '  credit 
svstem.'    As  the  debts  of  men  of  business  find  their  wav  into 


ii8  The  Le^nl-Tender  Problem 

the  banks,  so  do  their  credits ;  and  the  functions  of  the  banks, 
stripped  of  their  many  compHcations,  consist  chiefly  in  bal- 
ancing and  thus  extinguishing  the  debts  and  credits  of  their 
customers.  There  is  no  ground,  we  think,  for  the  doctrine 
that  the  incidents  and  characteristics  which  attend  a  cur- 
rency of  gold  and  silver  should  be  imitated,  or  even  referred 
to,  in  the  process  of  the  '  credit  system,'  much  less  regarded 
as  laws. 

"All  are  equally  agents  or  processes  of  commerce,  and 
must  be  considered  and  judged  upon  their  respective  merits, 
and  be  employed  according  to  the  opinion  and  sound  discre- 
tion of  the  parties  concerned." 

Coins  become  indispensable  only  when  given  the  exclu- 
sive privilege  of  being  legal  tender  and  made  the  only 
solvent  of  debt. 

The  advantages  which  accrue  to  a  people  from  the  use 
of  a  "  money  of  account "  and  the  "  credit  system "  are 
turned  into  tyranny  and  oppression  when  the  only  solvent 
of  debt  is  the  legal-tender  coins  of  gold  and  silver,  and  all 
amounts  due  under  the  credit  system  and  all  currency  are 
payable  in  them. 

The  theory  of  the  Bank  of  Venice  and  its  practise  is  the 
only  instance  in  all  history  where  the  payment  of  the  debts 
contracted  under  the  "  credit  system  "  were  not  dependent 
upon  the  legal-tender  coins,  and  it  is  also  the  only  instance 
in  all  history  where  for  any  length  of  time  there  were  no 
recurring  periods  of  financial  expansion  and  contraction 
with  its  attendant  loss  and  misery. 

"  Money  of  account,"  as  heretofore  set  forth,  is  alto- 
gether separate  and  different  from  money;  and  by  its  aid 
alone  the  value  of  money  is  ascertained,  even  though  the 
money  is  made  a  legal  tender.  The  danger  attendant  upon 
ignorance  of  this  distinction  arises  from  the  possibility  of 


"Money  of  Account"  119 

the  designing  and  crafty  changing  the  value  of  the  mediums 
of  payments  by  the  manipulation  of  the  laws  of  legal  tender, 
until,  in  the  course  of  time,  they  force  the  people  to  change 
their  conception  of  the  value  of  their  "  money  of  account  " 
to  the  value  of  the  metal  in  the  representatives  of  the  "money 
of  account."  While  this  process,  necessarily  slow  in  its 
operation,  is  taking  place,  all  the  creditors  are  reaping  a 
harvest,  and  all  the  debtors  arc  being  pauperized. 

"  Sir  James  Stewart,  in  whose  works  we  first  find  dis- 
tinctly set  forth  the  existence  and  uses  of  a  '  money  of  ac- 
count,' did  not  speak  of  it  nor  propose  it  as  a  currency ;  he 
did  not  regard  it  as  money."    We  give  his  own  words :  — 

"  Money  which  I  call  '  money  of  account '  is  no  more 
than  a  scale  of  equal  parts,  invented  for  measuring  the 
respective  value  of  things  vendible.  '  Money  of  account ' 
is,  therefore,  quite  a  different  thing  from  money  coin,  and 
might  exist  although  there  were  no  such  thing  in  the  world 
as  any  substance  which  could  become  an  adequate  and  pro- 
portional equivalent  for  every  commodity. 

" '  Money  of  account '  performs  the  same  office,  with 
regard  to  the  value  of  things,  that  degrees,  minutes,  seconds, 
etc..  do  with  regard  to  angles,  or  as  scales  do  to  geographical 
maps,  or  to  plans  of  any  kind.  In  all  these  inventions  there 
is  some  denominative  taken  for  the  unit.  In  angles,  it  is  the 
degree ;  in  geography,  it  is  the  mile  ;  in  plans,  foot,  yard ; 
in  money,  it  is  the  pound,  livre,  florin,  etc.  The  degree  has 
no  determinate  length,  so  neither  has  that  part  of  the  scale 
upon  the  plans  or  maps  which  mark  the  unit ;  the  usefulness 
of  all  these  being  solely  confined  to  the  marking  of  propor- 
tions. Just  so.  the  unit  in  money  can  have  no  invariable 
determinate  projjortion  to  any  part  of  value ;  that  is  to  say, 
it  can  not  be  iixcd  in  perpetuity  to  any  partieiilar  quantity 
of  gold  or  silver,  or  any  other  comnwdity. 


120  The  Legal-Tender  Problem 

"  The  value  of  commodities  depending  upon  circum- 
stances relative  to  themselves,  their  value  ought  to  be  con- 
sidered as  changing  with  respect  to  one  another  only ;  con- 
sequently, anything  which  troubles  or  perplexes  the  ascer- 
taining these  changes  of  proportion  by  the  means  of  the  gen- 
eral determining  and  invariable  scale  must  be  hurtful  to 
trade ;  and  this  is  the  infallible  consequence  of  every  vice  in 
the  policy  of  money  or  coin." 

It  is  the  study  of  the  philologist  to  explain  why  in  the 
formation  of  a  language  certain  words  were  developed  to 
describe  certain  objects,  and  other  words  to  convey  the 
impressions  and  workings  of  the  mind.  Certain  it  is,  how 
ever,  in  the  progress  of  each  nation  and  the  growth  and 
development  of  language,  w^ords  were  originated  to  convey 
the  idea  of  value  for  labor,  effort,  and  energy  expended,  and 
privation  undergone  in  securing  products,  ^nd  for  the 
relative  value  of  the  different  products  when  they  were 
exchanged. 

This  language  conveying  ideas  of  the  labor  value  inher- 
ent in  products,  etc.,  was  the  language  of  finance  and  the 
"  money  of  account." 

The  words  conveying  the  ideas  of  value,  indicating  the 
price  asked  and  the  price  offered,  were  concepts  or  abstract 
expressions  of  value  in  comparison,  and  when  expressed 
concretely,  took  the  shape  of  coins. 

The  size  and  shape  of  the  coin  was  determined  from  its 
convenience  for  the  purpose  and  its  fitness  for  the  use  in- 
tended ;  and  its  quantity  and  quality  from  the/  value  of  the 
metal  as  a  commodity  measured  by  the  unit  of  the  "  money 
of  account."  Therefore  only  so  much  of  the  metal  was  put 
into  the  coin  as  was  supposed  to  be  the  equivalent  in  value 
of  the  abstract  idea  of  labor  value  inherent  in  and  conveyed 
by  the  "  word  "  that  was  to  be  given  the  name  of  the  coin. 


"Money  of  Account"  121 

In  view  of  the  foregoing  considerations, —  which  were 
thoroughly  appreciated  \>y  such  statesmen  as  Jefferson  and 
Hamilton,  who  understood  the  science  of  finance,  and  knew 
the  necessity  for  a  "  money  of  account,"  if  we  were  in  the 
course  of  time  to  become  a  homogeneous  people,  speaking 
one  language, —  Congress,  under  their  advice,  in  the  act  of 
April,   1792,  established  a  "  money  of  account." 

The  act  reads  as  follows :  Section  20.  "  That  the  '  money 
of  account  '  of  the  United  States  shall  be  expressed  in  dollars 
or  units,  dimes  or  tenths,  cents  or  hundredths,  and  mills  or 
thousandths ;  a  dime  being  the  tenth  part  of  a  dollar,  a  cent 
the  hundredth  part  of  a  dollar,  etc.,  and  that  all  accounts 
in  the  public  offices,  and  all  proceedings  in  the  courts  of  the 
United  States,  shall  be  kept  and  had  in  conformity  to  this 
regulation." 

It  will  be  seen  from  the  reading  of  the  above,  it  was 
arranged  that  the  unit  of  the  "  money  of  account  "  should 
be  the  "  word  "  dollar :  and  in  Section  9  of  the  same  act  it 
was  provided  that  dollars  or  units  were  each  to  be  of  the 
value  of  a  Spanish  milled  dollar  as  the  same  is  now  current. 

According  to  Colwell,  in  his  "  Ways  and  Aleans  of  Pay- 
ment," page  140,  "  This  is,  perhaps,  the  first  time  that  a 
'  money  of  account '  was  ever  enacted  or  established  by  any 
public  authority  as  an  act  of  power." 

"  Money  of  account  "  had  in  all  nations  grown  up  in 
the  commercial  and  mental  habits  of  the  people,  and  was 
the  language  originated  to  express  the  relative  value  of  the 
energy,  effort,  and  labor  expended  and  privation  undergone 
in  fitting  and  bringing  into  proper  form  for  man's  use  the 
products  of  nature. 

"  The  dollar  was  employed  by  the  Spanish  nation  as  a 
term  of  the  "  money  of  account,"  and  the  Spanish  silver 
coin  known  as  the  dollar  had  been  in  frequent  use  in  this 


122  The  Legal-Tender  Problem 

country,  and  was  familiar  to  many  people  of  the  United 
vStates,  before  and  after  the  struggle  for  independence. 
It  was  wisely  chosen,  because  no  other  could  have  been 
brought  into  general  use  so  soon,"  and  because  of  the  great 
need  of  having  one  uniform  system  of  reckoning  and  keep- 
ing accounts,  if  we  were  to  become  one  homogeneous  race. 

The  use  of  the  Spanish  milled  silver-coin  dollar  had 
established  in  the  minds  of  those  people  who  had  been 
handling  them,  the  concept  of  their  value ;  and  if  there  had 
not  been  such  a  number  of  the  people  who  had  not  used 
them,  and  had  no  idea  whatever  of  the  labor  value  intended 
to  be  conveyed  by  the  "  word  "  dollar,  it  would  not  have 
been  necessary  to  have  ever  minted  a  coin  and  called  it 
the  dollar.  If  all  the  people  had  had  the  concept  of  the 
labor  value  the  "  word  "  dollar  was  intended  to  convey,  it 
would  have  been  better  never  to  have  minted  a  coin  and 
named  it  the  dollar.  In  such  a  case  we  would  have  escaped 
the  abuse  of  a  pure  financial  system  that  invariably  occurs 
when  the  coins  of  payment  bear  the  same  name  as  the  unit 
of  the  "  money  of  account."  For  wherever  that  is  the  case, 
the  variation  in  value  of  the  commodity  out  of  which  the 
coins  are  made,  is  constantly  changing  the  value  of  the 
coins ;  and  as  the  value  of  the  coins  of  payment  change,  the 
labor  value  of  the  unit  of  the  "  money  of  account  "  changes 
with  it.  This  is  understood  and  taken  advantage  of  by  the 
avaricious,  and  has  been  a  great  incentive  to  much  of  the 
vicious  financial  legislation  we  have  suffered. 

The  people  never  have  any  conception  of  what  is  going 
on,  until  in  the  payment  of  their  obligations  they  realize, 
contrary  to  all  experience  and  information,  that  they  are 
continually  and  unavoidably  losing  the  little  they  have.  As 
an  illustration  of  this,  the  English  sovereign,  which  is  the 
value  of  a  pound  sterling,  varies  in  value  with  the  com- 


''Money  of  Account"  123 

modit)'  out  of  wliicli  it  is  made,  and  may  be  above  or  below 
par ;  par  being  the  pound,  the  abstract  idea  of  labor  value 
to  every  Englishman  in  his  knowledge  of  the  relative  labor 
value  of  products  to  each  other,  even  though  one  of  the 
products  may  be  the  metal  out  of  which  the  sovereign  is 
made. 

Unfortunately  for  the  people  of  the  United  States  it  was 
not  possible  to  form  a  pure  financial  system,  because  they 
had  no  infancy  as  a  nation,  no  language  that  had  grown 
from  their  necessities,  but  were  a  congregated  people  from 
all  nations,  and  many  of  them  had  no  idea  of  the  value 
intended  to  be  conveyed  by  the  use  of  the  "  word  "  dollar, 
the  unit  of  the  "  money  of  account."  It  was  therefore 
incumbent  upon  the  Fathers  to  give  a  concrete  expression  in 
some  commodity  of  universally  known,  if  varying,  value 
to  the  "  word  "  dollar.  This  was  done  by  taking  one  thou- 
sand Spanish  milled  silver-coin  dollars,  fresh  from  the  mint, 
melting  them  into  a  mass,  removing  all  alloy,  and  ascertain- 
ing how  much  pure  silver  there  was  in  the  one-thousandth 
part  of  this  mass.  The  experiment,  made  by  the  aid  of  such 
instruments  for  assaying  as  were  in  use  at  that  time,  indi- 
cated that  there  w^ere  371  4/16  grains  of  pure  silver  in  one 
one-thousandth. of  the  mass. 

It  was  thereupon  enacted  by  Congress,  in  Section  9  of 
the  act  of  April  2,  1792,  that  the  value  of  the  "  coin  "  dollar 
should  be  371/4  grains  of  pure,  and  416  grains  of  standard, 
silver,  and  that  it  should  be  a  legal  tender,  thereby  making 
it  the  standard  dollar  of  payment,  but  not  the  standard  of 
value,  for  that  was  restricted  to  the  abstract  idea  of  labor 
value  conveyed  by  the  "  word  "  dollar. 

This  concrete  expression  of  the  "  word  "  dollar, —  viz., 
37134  grains  of  the  commodity  silver, —  was  the  value  neces- 
sarily conveyed  by  the  "  word  "  dollar  when  used  in  making 


124  The  Legal-Tender  Problem 

contracts  payable  in  dollars ;  and  the  legal-tender  quality 
given  it  was  a  guarantee  that  whatever  the  payee  might 
claim,  the  payer  could  never  be  compelled  to  pay  more  than 
this  value,  in  contracts  calling  for  the  payment  of  dollars, 
so  long  as  this  statute  stood  unrepealed.  This  determina- 
tion of  the  value  of  the  dollar  of  payment  remained  intact 
until  1873,  when  the  attempt  was  made  to  change  it  from 
371^  grains  of  pure  silver  to  25  8/10  grains  of  standard 
gold. 

It  is  evident  that  if  the  coinage  of  dollars  had  been  re- 
stricted to  silver,  there  would  never  have  been  any  variation 
in  value  between  the  dollars  of  payment  and  the  idea  of 
value  intended  to  be  conveyed  by  the  use  of  the  "  word  " 
dollar  in  pricing  products,  or  making  contracts,  from  the 
fact  that  the  "  word  "  dollar,  not  being  a  growth  of  the  lan- 
guage of  the  people,  would  have  had  no  generally  accepted 
and  controlling  abstract  idea  of  value,  but  would  have,  per- 
force, only  conveyed,  whenever  used,  the  value  of  371^ 
grains  of  pure  silver.  Therefore,  the  meaning  of  the 
"  word  "  dollar,  being  altogether  dependent  upon  the  stat- 
ute, would  have  been  controlled  in  its  meaning  of  value 
by  the  value  of  371^4  grains  of  silver  in  the  coin  dollar, 
and  hence  varied  in  value  with  silver. 

It  is  a  financial  truism,  not  generally  accepted,  however, 
that  the  value  of  the  dollar  of  payment  depends  more  upon 
the  possible  numbers  that  can  be  coined  than  upon  the 
number  that  are  coined.  This  was  thoroughly  appreciated 
and  understood  by  Jefferson,  Hamilton,  and  the  members 
of  the  first  Congress,  and  was  deemed  a  necessary  palliative 
in  restricting  the  money  of  the  country  to  gold  and  silver. 

Notwithstanding  the  dominance  of  the  Massachusetts 
hard-money  faction  forced  the  country  to,  a  specie  basis,  and 
it  had  been  secured,  as  was  supposed,  for  all  time  to  come. 


''Money  of  Account"  125 

or  until  the  Constitution  was  amended ;  and  notwithstanding 
it  was  well  known  that  there  was  not  more  than  ten  millions 
of  specie  in  the  country,  the  fact  that  all  the  gold  and  silver 
in  Europe,  as  well  as  all  the  gold  and  silver  mined  in  the 
future,  could  come  to  the  mints  to  be  coined,  it  was  hoped, 
would  make  the  possible  number  of  dollars  so  uncertain,  so 
indeterminate,  so  uncontrollable,  and  so  incalculable  that  the 
evil  effects  of  a  scarcity  of  the  circulating  medium  would 
not  oppress  the  people  seriously,  and  certainly  not  for  any 
great  length  of  time. 

Having  provided  for  the  minting  and  coinage  of  silver, 
it  was  necessary  to  make  similar  provision  for  the  minting 
and  coinage  of  gold. 

First,  it  was  necessary  to  determine  the  relative  value 
of  gold  and  silver.     The  experiments  made  indicated  that 
one  weight  of  gold  was  equal  in  value  to  fifteen  weight  of 
silver,  and,  therefore,  the  ratio  of  value  between  the  two 
metals  was  i  to  15.     The  names  given  the  gold  coins  were 
the  eagle,  the  half-eagle,  and  the  quarter-eagle.     The  value 
given  the  eagle  was  the  equivalent  of  ten  dollars  ;  the  half- 
eagle  the  equivalent  of  five  dollars;  and  the  quarter-eagle 
the  equivalent  of  two  and  one-half  dollars.     The  amount  of 
gold  put  in  the  eagle  was  one  fifteenth  the  quantity  of  silver 
put  in  ten  dollars ;  the  quantity  of  gold  put  in  the  half-eagle 
was  one  fifteenth  the  quantity  of  silver  put  in  five  dollars, 
etc.     The   gold   coins   were   made,   equally    with   the   silver 
coins,  a  legal  tender,  and  both  w-ere  mediums  of  payment; 
the  silver  coins,  dollars  of  payment,  and  the  gold  coins,  the 
equivalent  of  the  dollars  of  payment,  but  not  "  dollars  "  of 
payment.    It  is  evident  that  the  value  of  the  dollars  of  pay- 
ment, the  silver  coins,  and  the  value  of  the  equivalent  of  the 
dollars  of  payment,  the*  gold  coins,  would  vary  as  the  value 
of  the  two  metals  varied. 


126  The  Legal-Tender  Problem 

If  the  "  word  "  dollar,  the  unit  of  the  "  money  of  ac- 
count," had  had  an  independent,  controlling,  abstract  idea 
of  value  that  was  inherent  in  and  a  part  of  the  consciousness 
of  the  people,  as  the  "  word  "  pound  is  with  the  English,  the 
variation  in  the  value  of  either  the  gold  or  silver  coins 
would  have  been  shown  in  its  relation  to  this  value,  and 
they  would  have  been  either  above  or  below  par ;  but  the 
value  of  the  "  word  "  dollar  being  by  statute  dependent 
upon  the  value  of  the  silver  in  the  silver-coin  dollar,  the 
variation  in  value  only  of  the  gold  coins  appeared  to  the 
people,  and  the  value  of  the  silver  dollar  appeared  to  be 
stable  and  unchanging,  as  does  the  value  of  the  gold  coins 
to-day  when  they  are  called  the  standards  of  value. 

Ignorance  of  these  essential  and  elementary  principles, 
causes  many  writers  who  pose  as  authority  upon  matters 
financial,  to  continuously  vociferate  that  gold  never  changes 
in  value ;  that  it  is  an  absurdity  to  suggest  such  an  idea,  for 
it  is  the  standard  of  value,  and  can  no  more  change  than  does 
the  yardstick. 

It  is  true  that  in  one  sense  they  are  correct ;  and  it  is  this 
defect  in  the  system  of  this  country  that  enables  the  avari- 
cious to  work  out  their  schemes  of  spoliation,  and  which 
must  be  corrected  if  the  country  would  escape  the  fate  of 
the  dead  nations.  For  it  is  impossible  under  a  system  which 
makes  gold  and  silver  coins  the  only  solvent  of  debt,  to 
restrain  the  designing  from  so  manipulating  specie  at  unex- 
pected times  as  to  destroy  the  ratio  of  value  between  it  and 
all  products,  wares,  real  estate,  and  property ;  so  that  when 
settlement  and  payment  in  these  legal-tender  coins,  that  have 
acquired  such  an  undue  value,  is  made,  all  the  debtors  are 
heavy  losers,  and  all  the  creditors  are  gainers  of  the  loss. 

The  fact  that  the  only  change  th^t  has  occurred  to  make 
this  radical  disturbance  of  relative  values  has  been  in  the 


"Money  of  Account"  127 

gold  and  silver  coins,  and  that  it  is  the  enhancing  or  doub- 
ling their  value  which  occasions  the  destruction  of  values, 
does  not  appear,  because  the  poiver  of  legal  tender,  making 
them  the  only  solvent  of  debt,  has  the  practical  efYect  of 
forcing  the  acceptance  of  the  realization  that,  however  it 
may  be  in  fact,  in  law  and  practise  the  value  of  gold  and 
silver  has  remained  the  same,  and  the  value  of  everything 
else  has  changed. 

In  this  sense  only  is  it  true  that  the  value  of  gold  and 
silver  coins  do  not  vary,  and  are  ignorantly  termed  standards 
of  value.  The  advantage  that  accrued  to  the  people  under 
the  financial  plan  of  the  Constitution,  and  the  acts  of  Con- 
gress, aro.se  out  of  the  fact  that  both  gold  and  silver  coins 
were  given  the  exclusive  right  to  legal-tender  value,  and 
that  the  value  of  the  "  word  "  dollar  would  never  be  over 
371 14  grains  of  silver. 

Therefore,  the  manipulation  of  one  of  the  metals  did  not 
affect  the  right  of  the  people  to  pay  debts  with  the  coins 
made  out  of  the  other ;  and  so  long  as  silver  was  a  legal 
tender,  had  free  access  to  the  mint,  and  371^4  grains  was 
the  value  of  the  unit,  it  was  impossible  for  the  creditor  to 
compel  the  debtor  to  pay  more  than  the  value  of  S7^% 
grains  of  silver  per  dollar,  in  contracts  calling  for  pay- 
ment in  dollars.  It  was  possible,  however,  for  the  debtor 
to  pay  in  dollars  which  w^ere  of  less  value  than  371 M  gi^'iins 
of  silver,  when  gold  coins  were  at  a  discount,  and  this  was 
because  the  gold  coins  were  a  legal  tender,  and  the  debtor 
could  use  them  to  pay  debts.  It  was  natural,  therefore,  that 
the  debtor  would  always  exercise  the  option  of  paying  in 
the  cheaper  dollar,  whether  it  were  gold  or  silver. 

In  this  option  lay  the  only  redeeming  feature  of  our 
orioiinal  financial  system  ;  and  though  in  the  early  history 
of  the  country  the  scarcity  of  gold  and  silver  was  such  that 


128  The  Legal-Tender  Problem 

the  loss  and  suffering  for  want  of  the  necessary  circulating 
currency  forced  Congress  to  charter  a  bank  with  authority 
to  issue  notes,  yet  a  day  did  come  when  the  quantity  of  gold 
and  silver  was  such  that  the  resultant  effect  was  the  pros- 
perity of  the  entire  nation. 

The  prosperity  that  naturally  accrued  from  the  right  to 
pay  all  debts,  contracts,  etc.,  in  the  dollar  of  371  >4  grains 
of  silver,  or  a  cheaper  dollar,  if  gold  should  be  cheaper,  as 
the  silver  and  gold  increased  in  supply,  was  the  only  heritage 
in  the  financial  system  secured  to  the  people  by  the  Consti- 
tution and  the  Coinage  Act  of  1792. 

The  people  enjoyed  this  advantage  to  their  great  benefit, 
notwithstanding  the  perverting  abuses  and  impositions  that 
were  at  times  practised  by  the  creditors  and  the  hard-money 
faction  during  the  entire  history  of  the  country,  until  the 
money  power  endeavored  to  deprive  the  people  of  the  use 
of  silver  under  the  construction  given  the  following  clause 
in  the  act  of  1873 :  "  The  gold  coins  of  the  United  States,  at 
the  standard  weight  of  25  8/10  grains,  shall  be  the  unit  of 
value." 

After  this  change-  by  construction  of  the  unit  of  the 
"money  of  account"  from  a  dollar  of  the  value  of  371 M 
grains  of  silver  or  25  8/10  of  gold,  to  a  dollar  of  the  value 
of  25  8/10  grains  of  gold  only,  the  "  word "  dollar  has 
meant  in  payment  the  value  of  258/10  grains  of  gold, 
though  it  was  used  in  making  the  contract  as  of  the  value 
of  371,^4   grains  of  silver. 

This  one  fact,  aided  by  the  additional  value  that  was 
given  gold  coins  by  limiting  the  legal  tender  of  the  silver 
dollar,  was  instrumental  in  transferring  the  property  of 
the  debtor  to  the  creditor,  and  was  the  process  by  which 
the  rich  were  made  richer  and  the  poor,  poorer.  The  callous 
avariciousness  of  the  motives  of  the  creditors  has  only  been 


''Money  of  Account"  129 

surpassed  by  the  shameless  liypocrisy  of  their  professions, 
as  will  appear  hereafter. 

At  the  time  of  the  establishment  of  a  mint  (1792)  for 
the  coinage  of  silver  into  dollars,  and  subdivisions  of  a  dol- 
lar, naming  the  coins  in  the  language  of  the  "  money  of  ac- 
count," and  the  coinage  of  gold  into  eagles,  and  subdivisions 
of  the  eagle,  the  only  coins  in  use  were  foreign  coins.  It 
was  essential  that  these  coins  should  be  deprived  of  their 
foreign  names  and  value,  and  be  Americanized.  This 
could  only  be  done  by  recoining  them  into  dollars  and  sub- 
divisions of  the  dollar,  if  they  were  silver,  and  into  eagles 
and  subdivisions  of  the  eagle,  if  they  w^ere  gold.  Inasmuch 
as  they  were  needed  for  mediums  of  payment  until  this 
could  be  done,  Congress,  on  February  9,  1773,  regulated 
their  value,  made  them  legal  tenders  for  the  value  assigned 
them,  and  gave  them  three  years  to  be  recoined  at  the  mint, 
when,  if  not  recoined,  they  should  no  longer  be  legal  tenders. 


XI 

State  Banks 

Congress,  through  the  agency  of  the  Bank  of  tha» United 
States,  its  issue  of  notes,  the  renewal  of  Government  loans, 
and  the  regulation  of  the  value  of  foreign  coins,  provided  a 
circulating  currency  for  it  and  the  hard-money  faction. 

No  provision  whatever  had  been  made  to  furnish  the  peo- 
ple with  the  sorely  needed  mediums  of  exchange.  Congress 
would  grant  them  no  relief,  for  it  acted  upon  the  assump- 
tion that  it  was  morally  obligated  to  respect  the  pledge  of 
the  prior  Congress,  that  no  other  bank  would  be  granted  a 
charter  for  twenty  years. 

The  people  were  therefore  forced  to  rely  upon  the  ten- 
der mercies  of  the  hard-money  faction  and  their  bank,  since 
the  Constitution  prohibited  the  State  Legislatures  from 
making  anything  a  legal  tender  except  the  gold  and  silver 
coins  of  the  United  States,  and  also  prohibited  them  from 
emitting  bills  of  credit. 

If  the  General  Government  could  have  exercised  the 
power  at  that  time  to  enforce  a  strict  observance  of  the 
Constitution,  the  people  would  have  been  compelled  to  com- 
pete with  each  other  to  the  verge  of  desperation  for  the 
legal-tender  money  of  the  hard-money  faction,  and  the 
accumulation  of  wealth  would  have  taken  place  much  earlier 
than  has  been  the  case.  Fortunately  the  States  were  yet 
powerful,  for  the  General  Government  was  in  the  first 
stages   of  experimentation. 

Since  Congress,  in  chartering  the  Bank  of  the  United 
130 


State  Banks  131 

States  —  with  the  monopoly  to  issue  notes  for  twenty  years 
—  exercised  powers  which  had  been  withheld  from  it,  the 
State  Legislatures  —  which  had  the  undisputed  right  to 
grant  charters  of  incorporation  —  exercised  in  the  interest 
of  the  coin  owners,  upon  the  pretext  of  assisting  the  people, 
the  unconstitutional  power  of  authorizing  their  banks  to 
issue  notes. 

Therefore  by  1806  there  were  many  State  banks  in  oper- 
ation, whose  notes  were  being  used  by  the  people  to  their 
great  advantage  and  prosperity,  and  were  also  protecting 
their  property  from  the  spoliation  of  the  hard-money  faction 
that  w^ould  have  resulted  if  the  supply  of  money  had  been 
restricted  to  the  limited  issue  of  the  first  bank. 

The  first  bank  of  the  United  States,  as  is  now  apparent, 
was  a  close  combine,  organized  in  the  interest  of  some  .mem- 
bers of  Congress  and  a  few  individuals  on  the  outside,  and 
the  Government  was  taken  in  as  co-partner  to  give  its  notes 
circulation,  and  to  protect  their  interests. 

The  State  banks  were  originated  by  that  class  of  the 
hard-money  faction  who  could  not  get  into  the  United 
States  Bank  deal,  and .  their  number  was  augmented,  and 
they  were  made  more  powerful  as  a  faction,  by  the  owners 
of  such  additional  gold  and  silver  as  came  into  the  country 
to  share  in  the  rich  harvest  that  the  financial  system,  as 
exploited,  guaranteed. 

The  scheme  of  finance  put  into  operation  by  the  Gen- 
eral Government  was  so  unfair  and  unjust  to  the  people,  and 
so  partial  and  advantageous  to  the  wealthy,  that  it  made 
necessary  and  fully  justified  the  system  of  State  banks, 
unwholesome  and  unsound  as  they  were. 

The  theory  upon  which  the  State  banks  were  organized 
was  similar  to  that  of  the  Bank  of  the  United  States.  It 
was  claimed  for  them,  as  it  was  for  the  Bank  of  the  United 


132  The  Legal-Tender  Problem 

States,  that  all  the  notes  issued  were  redeemable  in  specie, 
and  that  those  issued  in  excess  were  fully  protected  by  the 
fact  that  they  were  so  necessary  as  mediums  of  payment 
that  the  small  amount  of  coin  held  in  the  bank  vaults  would 
always  be  ample  to  redeem  all  notes  presented. 

Under  such  a  condition  of  affairs  and  such  a  system  of 
finance,  it  is  not  surprising  that  but  little  supervision  was 
exercised  by  the  States  over  the  banks,  for  it  stands  to 
reason  that  those  highest  in  authority,  their  favorites,  friends, 
and  kindreds,  were  the  chief  officers  and  beneficiaries  of  the 
institutions. 

This  interested  neglect  upon  the  part  of  State  officials 
also  encouraged  the  adventurers  and  the  speculators  to  go 
into  the  business  of  State  banking  with  no  capital  except 
their  credit  and  their  daring. 

So  long  as  their  banks  passed  State  inspection,  though 
there  was  no  specie  in  their  vaults  to  redeem  the  notes, 
they  were  as  efficient  mediums  of  payment  as  were  the  notes 
of  banks  which  had  only  specie  enough  to  redeem  a  part  of 
their  notes. 

Until  attention  was  called  to  the  fact  that  the  banks 
could  not 'redeem  their  notes,  they  were  current  with  the 
people,  and  served  the  purpose  for  which  they  were  issued 
as  well  and  as  efficiently  as  any  other  money,  and  would 
have  so  continued  in  their  usefulness.  But  when  it  was 
once  whispered  that  there  was  no  money  in  the  vaults  to 
redeem  them,  the  value  of  the  notes  declined  as  the  whisper 
spread,  until  they  became  worthless. 

This  always  entails  a  double  loss  upon  a  community ; 
the  smaller  and  more  immediate  loss  is  the  loss  to  the  last 
holder  of  the  note ;  the  larger  but  less  apparent  loss  arises 
from  the  decrease  in  the  price  of  products  that  always  accom- 
panies a  decrease  in  the  circulating  currency. 


State  Banks  I33 

The  detection  and  advertisement  of  the  fact  that  certain 
banks  could  not  redeem  their  notes,  was  always  due  to  the 
avarice  of  the  hard-money  faction  whenever  and  so  soon  as 
the  notes  interfered  with  or  came  into  active  competition 
with  their  specie  and  bank-notes,  and  began  to  reduce  their 
profits.  The  fact  that  the  circulation  and  use  of  the  State 
bank-notes  may  have  been  beneficial  in  furnishing  a  full 
supply  of  money,  and  instrumental  in  keeping  the  hard- 
money  faction  from  exacting  from  the  people  an  imdue 
quantity  of  products  in  the  sale  of  their  money,  was  always 
fatal  to  the  longer  use  of  the  State  bank-notes,  when  that 
consideration  alone  should  have  entitled  them  to  continuous 
circulation,  since  such  a  system  had  been  imposed  upon  the 
people. 

Under  such  a  system,  where  the  notes  of  the  banks, — 
representing  only  twenty-five  or  less  cents  in  specie  value  — 
pass  as  of  the  value  of  one  hundred  cents,  it  is  impossible 
for  the  Government  to  keep  either  gold  or  silver  coins  in 
the  country.  Both  the  owners  of  gold  and  silver  refused  to 
carry  their  metals  to  the  mint  to  be  coined  into  legal-tender 
dollars  of  equal  value  with  a  bank-note  that  was  the  repre- 
sentative in  actual  specie  of  only  twenty-five  cents,  for  the 
same  reason  that  the  owners  of  silver  refused  to  carry  their 
silver  to  the  mint  to  be  coined  into  a  legal-tender  dollar  only 
equal  in  value  to  a  gold  dollar  when  the  bullion  value  of  the 
silver  in  the  dollar  was  more  valuable  than  the  bullion  value 
Df  gold  in  the  gold  coin. 

Therefore  for  the  same  reason  that  in  the  earl\-  history 
of  the  country  silver  was  used  as  local  money  and  gold  went 
to  Europe,  silver  was  driven  to  Europe  by  the  cheaper  bank- 
notes as  their  volume  of  issue  was  increased.  It  is  evident 
then  that  the  system  of  issuing  bank-notes  encouraged  or 
forced  the  owners  of  specie  to  ship  it  to  Europe  for  the 


134  The  Legal-Tender  Problem 

higher  value  they  could  get  for  it  there;  and  the  only  gold 
or  silver  that  remained  in  the  country  was  what  the  precau- 
tionary wisdom  of  the  bankers  retained  in  seeming  idleness 
in  their  vaults  to  redeem  their  notes  when  presented. 

The  only  restraint  upon  the  greed  of  the  bankers  to  issue 
three  dollars  of  paper  for  one  of  specie,  and  then  sell  the 
specie  for  export,  was  their  precautionary  wisdom  and  gov- 
ernmental inspection  and  regulation.  The  history  of  bank- 
ing shows  that  no  reliance  can  be  placed  upon  the  precau- 
tionary wisdom  of  the  bankers,  and  the  interest  of  State 
officials  in  the  banks  kept  them  from  exercising  any  but 
the  most  perfunctory  inspection. 

Mr.  Jefferson  realized,  since  gold  left  the  country  because 
silver  was  cheaper,  and  silver  was  leaving  because  the  bank- 
notes were  cheaper,  that  all  the  specie  was  leaving  the  coun- 
try, and  if  demand  should  be  made  for  payment,  of  the  bank- 
notes in  specie,  under  such  circumstances,  the  country  would 
be  ruined.  The  State-bank  faction  was  so  strong  at  that 
time  that  he  could  do  nothing  with  it,  nor  cause  the  proper 
regulation  of  their  banks,  and  the  only  action  left  him  was 
to  issue  the  silver  coins  in  denominations  less  than  the  dol- 
lar, in  the  hope  that  the  people  would  use  them  so  inces- 
santly that  they  could  not  be  secured  by  the  speculators  to 
be  exported. 

He,  therefore,  in  1806,  influenced  Congress  to  pass  a 
law  to  cease  the  coinage  of  the  silver  dollar, —  which  was 
exported  as  fast  as  issued  from  the  mint, —  and  coin  only  the 
subsidiary  coins  which  it  was  hoped  would  remain  in  cir- 
culation. 

It  appears  that  by  1809  the  notes  of  the  State,  banks  were 
seriously  interfering  with  the  profits  of  the  Bank  of  the 
United  States,  and  "  the  Legislature  of  Rhode  Island  was 
induced  to  cause  an  examination  into  the  affairs  of  one  of 


State  Banks  i35 

its  banks, —  The  Farmer's  Exchange  Bank  of  Gloucester, — 
and  it  was  found  that  the  bank  had  $580,000  of  its  notes  in 
circulation,  and  only  $86.16  of  specie  in  its  vaults  with  which 
to  redeem  the  notes  issued." 

The  advertisement  of  this  fact  had  the  desired  effect ; 
the  $580,000  notes  of  the  bank  were  made  worthless,  as  a 
circulating  currency ;  the  currency  of  the  country  was  re- 
duced to  that  extent,  and  to  the  extent  that  the  volume  of 
currency  was  curtailed,  to  that  extent  was  the  value  of  the 
remaining  currency  enhanced. 

The  warfare  against  the  State  banks  was  kept  up  by 
the  hard-money  faction  and  the  Bank  of  the  United  States, 
and  by  the  end  of  the  year  there  was  a  general  suspension 
of  all  the  State  banks  of  New  England.  The  result  of  these 
suspensions  was  immediate  loss  to  the  holders  of  the  notes 
of  the  suspended  banks,  for  they  had  to  await  the  winding 
up  of  the  affairs  of  the  bank  in  order  to  collect  whatever  of 
value  there  might  be  in  the  notes.  It  is  apparent  that  the 
people  lost  and  the  hard-money  faction  gained  to  the  extent 
that  the  volume  of  currenc}-  was  reduced  by  driving  State 
bank-notes   out    of   circulation. 

Expressed  in  a  financial  axiom,  the  reduction  of  the  vol- 
ume of  currency  decreases  the  price  of  products,  and  en- 
hances the  value  of  the  money  that  is  left  in  circulation,  in 
the  proportion  of  the  reduction  to  the  volume. 

This  warfare  continued  until  181 1,  and  drove  the  adven- 
turers and  speculators  out  of  the  banking  business. 

It  appears  that  by  181 1,  the  number  of  notes  issued  and 
in  circulation  by  the  State  banks  was  twenty-eight  millions, 
notwithstanding  the  warfare  that  had  been  waged  against 
them  by  the  Bank  of  the  United  States. 

In  the  warfare  the  State-bank  faction  won ;  and  at  the 
expiration  of  the  charter  of  the  Bank  of  the  United  States 


136  The  Legal-Tender  Problem 

in  181 1,  Congress  was  induced  to  refuse  it  a  new  charter. 
It  was  therefore  forced  to  go  into  liquidation,  and  redeem 
its  notes.  Under  these  circumstances,  and  with  this  false, 
inefficient,  and  unscientific  system  of  finance,  the  Govern- 
ment found  itself  at  war  with  England  in  18 12. 

After  Congress  refused  to  recharter  the  Bank  of  the 
United  States,  many  additional  State  banks  sprang  into 
existence ;  and,  as  the  notes  of  the  Bank  of  the  United  States 
were  redeemed  and  retired  from  circulation,  the  notes  of 
State  banks  took  their  place,  until  they  were  the  principal 
money  of  the  country. 


XTT 
The   JVar  of   l8l2  and  the    Treasury  Notes 

The  State  banks  were  called  upon  to  furnish  the  money 
necessary  to  fight  the  war,  and  they  agreed  to  exchange  the 
notes  of  the  banks  for  the  bonds  of  the  Government,  taking 
them  at  the  value  of  eighty  cents  on  the  dollar. 

The  iniquities  of  a  financial  system  wherein  bank  issues 
are  based  upon  redemption  in  specie,  and  the  abuses  which 
are  practised,  appear  most  vividly  in  times  of  war. 

It  is  proper  to  ascertain  the  specie  value  of  the  bank-notes 
in  order  that  the  patriotism  of  the  hard-money  faction  may 
be  made  to  appear. 

Under  any  and  all  banking  systems  an  issue  of  three 
dollars  in  paper  for  one  of  specie  was  the  minimum,  and 
the  maximum  issue  depended  either  upon  the  regulation  of 
the  Government  or  the  prudential  avarice  of  the  bankers,  if 
there  was  no  restriction. 

It  can  safely  be  assumed,  at  that  time,  and  imder  those 
circumstances,  that  there  was  an  issue  of  four  dollars  of 
paper  for  one  of  specie  by  every  bank  which  had  notes  out- 
standing, making  the  notes  the  representatives  of  twenty- 
five  cents  only  in  specie.  Therefore  the  exchange  would  be 
as  follows :  On  $ioo  in  specie  there  was  issued  $400  of  bank- 
notes, and  at  eighty  cents  on  the  dollar  for  the  six-per-cent 
bonds  the  $400  of  bank-notes  would  exchange  for  $500  of 
the  six-per-cent  bonds  ;  an  annual  interest  of  thirty  per  cent 
on  the  $100  of  specie  so  long  as  the  bond  was  unpaid,  and 
$400  profits  when  the  bond  of  $500  was  paid  in  specie. 

137 


138  The  Legal-Tender  Problem 

This  is  a  fair  sample  of  the  self-sacrificing  spirit  always 
displayed  by  the  hard-money  faction  whenever  the  country 
is  threatened  \vith  the  dangers  of  war;  and  if  they  are  not 
permitted  to  exercise  this  liberality,  and  the  Government 
should  resort  to  some  other  plan  to  raise  money,  which  is 
not  equally  advantageous  to  them,  they  invariably  endeavor 
to  discredit  the  issues  so  that  the  Government  will  be  forced 
to  accede  to  their  terms ;  and  they  then  have  the  effrontery 
to  pose  as  the  saviors  of  the  country. 

This  proposition  of  the  State  banks  was  being  acted  upon 
by  the  Government  when  Congress  was  induced  to  issue 
treasury  notes  on  January  30,  1812,  to  the  amount  of  $5,000,- 
000.  These  treasury  notes  were  only  to  run  one  year,  bear 
live  and  two-fifths  per  cent  interest,  and  were  receivable  for 
all  debts  due  the  Government.  They  were  also  to  be  paid  to 
all  public  creditors  and  other  persons  willing  to  receive  them. 

The  treasurer  was  authorized  to  borrow,  at  not  less 
than  par,  such  sums,  from  time  to  time,  as  the  president 
might  deem  expedient ;  and  for  this  purpose  authority  was 
given  to  deposit  them  in  such  banks  as  would  receive  them 
at  par  with  accrued  interest,  and  give  credit  to  the  treasurer 
of  the  United  States. 

It  was  further  provided  that  the  commissioners  of  the 
sinking  fund  should  pay  and  retire  said  treasury  notes  at 
the  times  named  in  said  act.  Under  this  arrangement  it  is 
evident  that  the  banks  would  hold  the  interest-bearing  nptes 
of  the  Government,  and  pay  out  their  own  notes  upon  the 
order  of  the  treasurer. 

Inasmuch  as  the  bank-note  of  one  dollar  was  the  rep- 
resentative of  only  twenty-five  cents  of  specie,  it  is  evident 
that  when  it  was  exchanged  for  a  one-dollar  treasury  note 
bearing  five  and  two-fifths  per  cent  annual  interest,  every 
dollar  of   specie   upon   which   bank-notes   were   issued   was 


Treasury  Notes  of  l8l2  i39 

drawing  four  times  that  much  interest,  or  twenty-one  and 
three-fifths  per  cent  per  annum. 

The  treasury  notes  were  not  intended  to  circulate  as 
money,  and  nothing  is  said  in  the  act  about  the  denomina- 
tions in  which  they  were  to  be  issued ;  and  though  it  was 
provided  that  they  might  be  used  in  the  payment  of  all  Gov- 
ernment dues  and  taxes,  they  were  given  that  right  only 
to  enhance  their  value  with  the  bankers. 

It  is  difficult  to  understand  why  Congress,  if  it  was  not 
dominated  by  the  State-bank  faction,  did  not  authorize  the 
issue  of  the  treasury  notes  in  small  denominations,  as  legal 
tenders  in  the  payment  of  all  debts,  public  and  private,  direct 
to  the  people  without  the  assistance  of  the  banks. 

This  could  have  been  done  as  an  experiment,  trusting 
that  the  patriotism  of  the  people  would  sustain  them  during 
the  crisis,  even  if  they  had  to  make  provision  to  pay  them 
after  the  termination  of  the  struggle  by  their  gradual  ex- 
change for  interest-bearing  obligations.  If  the  notes  had 
been  issued  impressed  with  these  characteristics,  they  need 
not  have  borne  interest ;  and  if  they  had  retained  their  full 
legal  tender  until  they  were  presented  by  the  people  for 
bonds,  they  would  be  in  circulation  to  this  day. 

That  they  would  have  been  a  much  safer  issue  than  the 
bank-notes  is  necessarily  true  from  the  fact  that  the  bank- 
notes were  good  only  because  they  were  claimed,  to  be 
redeemable  in  coin,  while  the  treasury  notes  would  have 
been  g-ood  because  thev  were  receivable  for  all  Government 
dues,  taxes,  and  obligations,  and  were  legal  mediums  of  pay- 
ment for  all  private  debts. 

The  history  of  the  finances  of  every  nation  which  has 
issued  notes,  making  them  a  full  legal  tender  and  not  redeem- 
able in  coin,  fails  to  show  a  single  instance  Avhcre  the  value 
of  the  note  decreased  below  the  value  of  specie,  so  long  as 


140  The  Legal-Tender  Problem 

they  were  a  legal  tender  in'  the  payment  of  public  and  private 
debts ;  but  on  the  contrary  they  were  always  at  par,  and 
frequently  at  a  premium  over  specie,  so  long  as  they  were  on 
an  equal  footing  before  the  law  with  gold  and  silver  coin. 

The  history  of  every  nation  which  has  authorized  banks 
to  issue  notes,  based  on  redemption  in  specie,  shows  fre- 
quent instances  where,  from  inability  or  failure  from  some 
cause,  the  banks  have  not  redeemed  their  notes,  and  the  peo- 
ple have  borne  the  loss. 

An  exposure  of  the  motives  which  control  in  the  issuance 
of  the  notes  by  the  one  system  or  the  other,  should  be  suffi- 
cient to  convince  any  unprejudiced  and  unselfish  individual 
which  is  the  purest  and  most  natural. 

In  the  issue  of  bank-notes  it  is  the  avarice  and  greed  of 
the  owners  of  the  specie  that  always  controls.  The  owners 
of  the  specie  claim  that  they  have  the  right  to  the  monopoly 
of  using  their  gold  and  silver  as  money,  and  that  they  are 
protected  in  their  claim  against  adverse  legislation,  by  the 
Constitution;  that  if  at  any  time  the  scarcity  of  gold  and 
silver  should  make  it  necessary  to  issue  additional  cur- 
rency, they  only  have  that  right,  and  should  be  permitted 
to  meet  the  exigencies  of  the  occasion  by  issuing  three  or 
more  dollars  of  paper  on  every  dollar  of  specie,  through 
banks  of  issue ;  that  this  extra  issue  of  paper  money,  made 
through  the  instrumentality  of  their  banks,  meeting  the 
demands  of  the  people  and  fulfilling  the  requirements  of 
trade  and  commerce,  justifies  them  in  exacting  six  per  cent 
interest  on  every  dollar  of  their  paper  loaned,  though  it  does 
not  represent  in  value  more  than  twenty-five  cents  in  specie, 
and  in  many  cases  a  much  less  amount ;  that  this  right  and 
privilege  is  secured  by  the  Constitution,  and  if  it  had  not 
been  there  would  have  been  no  Constitution  nor  independent 
Government ;  that  the  sole  exercise  of  this  privilege  was  the 


Treasury  Notes  of  l8l2  141 

price  they  exacted  for  securing  the  independence  of  the 
country,  and  thereby  guaranteeing  the  freedom  which  has 
so  long  been  enjoyed ;  that  they  only  permitted  the  Govern- 
ment to  be  formed  and  the  Constitution  framed,  upon  this 
condition,  and  that  there  shall  be  no  violation  of  their  vested 
rights ;  that  whenever  there  is  a  violation  on  the  part  of  the 
Government  of  these  enforced  conditions,  w^hich  are  calcu- 
lated to  deprive  the  gold  and  silver  owners  of  the  profits 
of  the  privilege  secured,  they  no  longer  owe  the  Govern- 
ment any  allegiance,  and  have  the  right  to  oppose  such 
action  of  the  Government  in  any  way  that  best  subserves 
their  purpose.  Standing  in  this  attitude  of  constitutional 
hostility  to  the  Government,  it  is  essentially  necessary  that 
they  should  control  the  legislation  and  officials  of  the  United 
States. 

The  motives  which  should  control  in  the  issuance  of 
treasury  notes  should  be  the  desire  of  the  Government  to 
relieve  the  people  from  the  suffering  and  loss  that  an  insuffi- 
cient supply  of  money  always  causes,  or  to  so  aid  the  people, 
whenever  an  enemy  is  invading  the  country,  that  they  may 
be  encouraged  and  enabled  to  repel  the  invasion. 

These  are  the  underlying  and  controlling  considerations 
that  make  it  impossible  to  secure  a  Congress  which  will  issue 
treasury  notes  at  all,  or,  if  it  is  forced  to  issue  them  in  the 
hour  of  danger,  issues  them  in  such  a  manner  that  it  is  more 
to  the  advantage  of  the  coin  owners  than  to  the  advantage 
of  the  people  and  the  Government.  These  reasons  are  never 
advanced,  however,  for  a  correct  understanding  of  the  mat- 
ter by  the  people  would  cause  them  to  put  a  stop  to  the  prac- 
tise of  the  iniquitous  abuse  upon  them  and  their  prosperity. 

The  argument  which  is  most  universally  presented  to 
the  people,  and  has  proved  most  conclusive  and  controlling, 
is  that  Congress  can  not  be  trusted  to  issue  treasury  notes, 


142  The  Legal-Tender  Proble 


m 


for  it  would  in  the  course  of  time  issue  so  many  that  it  would 
destroy  the  value  and  use  of  all  the  issues,  and  thus  cause 
the  greatest  disaster. 

The  hard-money  faction  teach  that  the  weakness  and 
instability  of  man,  and  consequently  of  Governments  man- 
aged by  men,  has  always  been  and  always  will  be  such  that 
they  can  not  be  entrusted  to  discharge  this  governmental 
duty.  In  fact  they  claim  that  no  class  of  men  ever  have  or 
ever  will  faithfully,  impartially,  and  justly  discharge  this 
function  of  Government,  and  that  nature,  in  its  arbitrary 
treatment  of  humanity,  is  the  only  safe  reliance.  Therefore 
they  claimed,  inasmuch  as  the  experience  of  the  centuries 
had  demonstrated  that  nature  has  not  given  to  mankind 
more  than  enough  gold  and  silver  to  furnish  an  equitable 
and  just  supply  of  money,  that  gold  and  silver  are  the  only 
commodities  which  have  the  right  to  be  used  for  that  pur- 
pose. 

This  doctrinal  error  was  supposed  to  be  safely  incorpor- 
ated into  the  Constitution  of  the  United  States,  and  was 
guarded  by  denying  to  the  States  the  right  or  power  to  emit 
bills  of  credit,  or  make  anything  a  legal  tender  except  the 
gold  and  silver  coins  of  the  United  States ;  and  further  pro- 
tected by  withholding  from  Congress  the  right  or  power  to 
emit  bills  on  the  credit  of  the  Government,  or  to  charter 
banks. 

Therefore,  on  occasions  when  the  supply  of  gold  and 
silver  is  not  sufficient  to  discharge  the  duties  required  of  a 
circulating  medium,  and  this  scarcity  has  to  be  augmented 
by  an  additional  issue,  the  hard-money  faction  resent  any 
independent  action  of  irresponsible  and  weak  Congresses 
tending  to  such  an  end,  and  demand  that  the  entire  matter 
shall  be  turned  over  to  them.  This  demand  has  always  been 
acceded  to,  and  the  money  and  currency  of  the  country  has 


Treasury  Notes  of  1 8 12  i43 

been  and  is  issued  on  the  assumption  that  what  could  not  be 
left  to  the  discretion  of  Congress  could  be  safely  turned  over 
to  the  avarice  of  the  hard-money  faction. 

It  should  not  be  a  cause  of  surprise  that  the  history  of 
the  finances  has  been  that  of  a  redundant  and  contracted 
currency  at  such  times  as  the  avarice  of  individuals  has 
decided  was  most  advantageous  for  their  interest,  even  to 
the  despoilment  of  the  people. 

It  is  a  most  serious  reflection  upon  the  stability  and 
integrity  of  the  form  of  Government,  and  a  challenge  to 
its  right  of  longer  continuance,  that  it  can  not  be  en- 
trusted to  exercise  the  most  essential  act  of  sovereignty ; 
an  act  that  it  is  absolutely  necessary  to  exercise,  and  exer- 
cise properly  and  justly,  to  preserve  the  prosperity  and  lib- 
erty of  the  people,  and  which  in  hours  of  deadly  peril  to 
the  Government  it  is  only  allowed  to  exercise  in  such  a 
manner  as  the  hard-money  faction  will  permit. 

This  digression  has  been  made  to  exhibit  the  influence 
and  power,  and  the  causes  therefor,  of  the  hard-money  fac- 
tion over  Congress ;  and  to  show  that  though  under  the  ex- 
citement of  a  declaration  of  war  with  England  it  could  not 
be  restrained  from  issuing  treasury  notes,  yet  it  could  be  in- 
duced to  issue  them  in  such  a  manner  that  they  bore  twenty- 
one  and  three-fifths  per  cent  interest,  and  were  to  be  retired 
so  soon  as  the  crisis  was  past. 

On  February  25,  1813,  Congress  passed  an  act  author-^ 
izing  an  issue  of  ten  millions  of  treasury  notes  upon  the  same 
terms  and  with  similar  provisions   for  their  payment  and 
cancellation  as  the  first  issue. 


XIII 

The  Origin  of  the  Factional  Parties 

The  first  bank  of  the  United  States,  in  which  the  finan- 
ciers of  Massachusetts  invested  their  money,  and  which  was 
chartered  by  Congress  when  it  was  under  their  influence  and 
control,  expired  by  Hmitation  in   1811. 

When  the  Massachusetts  hard-money  class  secured  the 
charter,  there  may  have  been  difference  in  opinions  as  to  the 
policies  to  be  pursued,  but  no  division  of  the  people  into  fac- 
tions. The  Patriots  were  in  the  ascendant,  the  Tories  had 
disappeared,  and  the  people  were  united,  except  for  the 
aggressive  and  greedy  activity  of  the  hard-money  faction  in 
its  efforts  to  control  legislation  in  order  that  it  might  exploit 
the  country. 

The  inhuman  selfishness,  as  manifested  in  its  manipula- 
tion of  the  constitutional  convention  and  early  Congresses, 
and  its  manifest  intention  to  make  the  United  States  Govern- 
ment a  strong  centralized  power  to  serve  their  purpose  of 
self-aggrandizement,  caused  and  created  an  opposition  party ; 
and  in  1801  the  opposition,  under  the  name  of  the  Republican 
party,  elected  Thomas  Jefferson  president,  and  took  charge 
of  the  Government. 

By  the  election  of  Mr.  Jefferson,  the  control  of  the  Gov- 
ernment was  taken  out  of  the  hands  of  the  Massachusetts 
hard-money  faction,  and  many  reforms  that  enured  to  the 
benefit  of  the  people  were  inaugurated,  and  their  principles 
are  the  basic  ideas  of  the  Democratic  party  to-day ;  but  none 
could  be  instituted  in  the  finances  because  of  the  restrictions 
144 


The  Origin   of  the  Factional  Parties       145 

of  the  Constitution,  and  the  opposition  of  both  hard-money 
factions. 

If  Mr.  Jefferson  had  been  wilhng  to  extend  the  privilege 
of  national  banks  to  meet  the  demands  for  a  circulating  cur- 
rency, he  could  not  have  done  so,  because  of  the  pledge 
exacted  from  Congress  that  it  would  not  grant  any  other 
bank  a  charter  until  181 1. 

If  he  was  opposed  to  the  State  Legislatures'  granting 
charters  to  banks,  and  empowering  them  to  do  what  the 
States  were  prohibited  from  doing,  he  was  equally  power- 
less ;  for  the  necessity  and  demand  for  additional  currency 
that  forced  this  radical  action  of  the  State  Legislatures, 
had  so  strengthened  the  State-bank  faction  that  he  was 
dependent  upon  and  indebted  to  their  assistance  for  such 
reforms  as  he  was  able  to  secure. 

A  statesman  who  respected  the  Constitution,  a  strict  con- 
structionist of  that  instrument,  an  advocate  of  the  sov- 
ereignty of  the  States,  and  opposed  to  a  strong  centralized 
Government,  Mr.  Jefferson  preferred  affiliation  with  the 
State-bank  faction  in  the  management  of  the  affairs  of  the 
Government.  From  principle  and  construction  he  was  op- 
posed to  the  State-bank  system.  From  principle,  construc- 
tion, and  experience  he  was  opposed  to  the  national-bank 
system.  He  resisted  the  contention  that  because  the  Consti- 
tution did  not  give  the  power  to  Congress  to  emit  bills  of 
credit,  it  had  no  right  to  exercise  such  power ;  but  claimed 
that  such  an  exercise  of  power  was  an  essential  and  neces- 
sary act  of  sovereignty,  inherent  and  inalienable. 

He  was  indignant  that  any  class  of  men,  actuated  by 
motives  of  avarice,  could  be  so  inhuman  and  indifferent  to 
the  public  and  private  weal  that  they  were  willing  to  so  use 
their  influence  over  Congress  as  to  cause  it  to  refuse  to  issue 
treasury  notes,  when  additional   currency   was   imperative, 

ID 


146  The  Legal-Tender  Problem 

on  the  unsound  pretext  that  said  power  had  not  been  dele- 
gated to  Congress ;  and  yet  could  use  their  influence  to  have 
that  body  grant  a  charter  of  incorporation  to  a  bank  with 
power  to  issue  notes,  when  neither  of  the  powers  were  dele- 
gated to  it. 

Under  these  circumstances  Mr.  Jefferson  had  much  more 
toleration  for  the  State-bank  faction  which  had  come  into 
existence,  not  so  much  from  the  greed  of  its  own  members 
as  from  the  policies  of  the  Massachusetts  hard-money  fac- 
tion ;  and  he  was  willing  to  affiliate  with  them  in  order,  first, 
that  he  might  remove  the  fangs  of  the  national  bankers  from 
the  throat  of  the  country,  and  bide  his  opportunity  to  free 
the  people  from  the  imposition  of  the  State-bank  system. 

A  purist  in  thought,  reason,  and  action,  he  kept  severely 
aloof  from  both  systems  in  theory,  and  only  committed  him- 
self to  a  present  policy  of  expediency,  in  associating  with  the 
State-bank  faction,  in  the  hope  and  for  the  purpose  of  being 
enabled  to  correct  and  reform  the  abuses  that  had  been 
forced  upon  the  Government  by  the  financiers  of  the  East. 
He  endeavored  to  inaugurate  and  put  into  the  practise  and 
policy  of  the  Government,  principles,  which,  if  preserved 
and  enforced,  will  insure  the  prosperity  of  the  country  and 
the  enjoyment  of  liberty  for  all  future  time. 

The  overthrow  of  the  Eastern  financiers,  the  destruction 
of  their  financial  system,  and  the  stoppage  of  their  wholesale 
spoliation  of  the  people,  was  wormwood  and  gall  to  the 
money-making  patriots  of  the  East,  and  they  denounced 
Jefferson,  and  have  reviled  his  principles  and  their  advocates 
from  that  day  to  this. 


XIV 

The  National-Bank  Faction 

]\Ir.  Jefferson  was  succeeded  in  office  by  Mr.  Madison 
in  1809,  and  he,  aided  by  the  State-bank  faction,  was  in  con- 
trol when  war  was  declared  against  England  in  1812,  and 
treasury  notes  were  being  issued  and  turned  over  to  the 
State  banks  in  exchange  for  their  notes. 

Under  this  condition,  all  the  money  that  was  being  made 
out  of  the  necessities  of  the  Government  and  the  people  in 
the  conduct  of  the  war,  was  going  into  the  pockets  of  the 
State-bank  faction ;  and  there  being  no  profit  in  the  war  for 
the  Massachusetts  hard-money  faction,  they  bitterly  opposed 
it,  and  continued  their  opposition  until  it  became  treasonable. 

\\'hen  war  was  declared,  the  New  England  Federalists, 
with  Josiah  Quincy,  of  Massachusetts,  as  leader  in  Congress, 
denounced  it  as  unnecessary,  unjust,  and  undertaken  from 
the  most  criminal  motives.  So  malicious  and  scurrilous  were 
these  attacks  that  ]\Ir.  Clay  felt  called  upon  to  answer  them 
on  January  8,  1813.  and  after  quoting  Quincy's  former  senti- 
ment in  favor  of  disunion,  declared  his  conviction  that  no 
man  who  had  paid  any  attention  to  the  tone  of  certain  prints, 
and  to  transactions  in  a  particular  quarter,  of  the  Union 
(New  England)  for  several  years  past,  could  doubt  the  ex- 
istence of  a  plot  to  dismember  the  Union. — "Randall's  Life 
of  Jefferson,"  Vol.  ?,  page  376. 

"The  Boston  Daily  Advertiser  recommended  that  the 
New  England  States  form  a  separate  peace,  urging  that  it 
was  lawful  and  proper  to  do  so;  and  if  Congress  should 

147 


148  The  Legal-Tender  Problem 

refuse  its  assent,  it  would  be  for  wise  and  prudent  men  to 
decide  what  ought  to  be  done." — "Randall's  Life  of  Jeffer- 
son," Vol.  3,  page  383. 

"  The  executives  of  Massachusetts  and  Connecticut  had 
refused  to  submit  the  mihtia  of  those  States  to  orders  issued 
by  the  President." —  Id.,  page  384. 

"  In  November,  1813,  Chittenden,  governor  of  Vermont, 
by  proclamation,  ordered  home  the  militia  of  his  State  from 
Canada. 

"  The  officers  answered  that  they  regarded  the  governor's 
proclamation  with  mingled  emotions  of  pity  and  contempt 
for  its  author. 

"  The  reply  of  the  soldiers  and  the  resolutions  in  Con- 
gress to  instruct  the  attorney-general  to  prosecute  Chittenden 
for  attempting  to  induce  desertion,  though  withdrawn  at  the 
request  of  the  Republican  representatives  from  that  State, 
did  not  restrain  the  Legislature  of  Massachusetts  from  pledg- 
ing that  State  to  the  support  of  Vermont,  or  any  other  State, 
whose  constitutional  rights  were  invaded." — Id.,  page  384. 

After  this  the  warfare  was  conducted  by  the  banks ;  and, 
"  according  to  Matthew  Carey  in  his  '  Olive  Branch,'  the 
Boston  banks  in  the  latter  part  of  18 13  and  the  early  part  of 
1 8 14,  entered  vigorously  upon  an  attempt  to  stop  the  wheels 
of  Government  by  draining  the  banks  in  the  Middle  and 
Southern  States  of  their  specie,  and  thus  producing  an  utter 
disability  to  fill  the  loans  which  the  Government  was  attempt- 
ing to  effect." — Id.,  page  387. 

The  amount  of  specie  withdrawn  in  eight  months  was 
between  seven  and  eight  millions  of  dollars,  and  the  result 
was  that  the  banks  from  New  York  to  Norfolk  inclusive,  as 
well  as  most  of  them  to  the  westward,  were  literally  drained 
of  their  specie;  and  when  the  Government,  early  in  1814, 
called  upon  the  banks  for  a  further  loan,  they  were  forced  to 
decline  unless  they  were  allowed  to  suspend  specie  payment. 


The  National-Bank  Faction  I49 

The  New  England  financiers,  in  their  dcterminaticin  to 
break  down  the  State  banking  system,  and  force  the  Gov- 
ernment to  grant  them  a  charter  for  a  national  bank,  refused 
to  let  their  specie  circulate  or  be  used  in  the  United  States. 

"  The  Federal  press  and  pulpit  of  Massachusetts  so  vio- 
lently denounced  the  citizens  of  the  State  who  should  take 
any  part  of  the  Government  loans,  that  the  agents  of  the 
Government  were  compelled  to  advertise  that  the  names  of 
subscribers  should  be  kep  secret." — "Randall's  Life  of  Jef- 
ferson," Vol.  J,  pai:^c  ^88. 

The  Massachusetts  hard-monev  faction  was  so  imbued 
with  this  fell  spirit,  and  their  warfare  against  the  State 
banks  was  so  uncompromisingly  hostile,  that  notwithstand- 
ing the  country  was  at  war  with  England,  "  they  invested 
their  specie  in  the  bills  of  the  English  Government  which 
had  been  drawn  in  Quebec." — Id.,  page  388. 

It  was  at  the  time  this  war  of  extermination  between 
the  two  hard-money  factions  was  being  waged  in  reckless 
disregard  of  the  welfare  of  the  country,  that  the  Govern- 
ment found  it  necessary  to  issue  treasury  notes  to  resist  the 
aggression  of  English  tyranny. 

But  however  bitterly  the  factions  might  wage  war  for 
supremacy  in  the  control  of  the  finances,  they  were  too  con- 
scious of  the  ultimate  benefit  to  them  for  either  to  join  with 
Mr.  Jeflferson  against  the  other  in  the  enforcement  of  his 
theories,  and  they  joined  forces  to  preserve  to  the  victor  all 
the  spoils,  and  forced  Congress  to  issue  treasury  notes  in 
the  manner  hereinbefore  set  forth.  Therefore  the  act  of 
March  14,  18 14.  authorized  the  issue  of  ten  millions  addi- 
tional notes,  similar  to  those  heretofore  issued,  and  that  they 
should  be  placed  to  the  credit  of  the  Government  in  the 
suspended  State  banks. 

The  national  bank  preferred  even  this  —  advantageous 
as  it  was  to  the  State  banks,  which  they  had  good  cause  to 


150  The  Legal-Tender  Problem 

think  they  had  destroyed  —  to  the  adoption  of  the  theories  of 
Mr.  Jefferson,  and  they  bided  their  time  and  awaited  their 
opportunity. 

On  December  26,  18 14,  Congress  authorized  the  issue 
of  twenty-five  milUons  in  treasury  notes,  in  the  place  of  a 
loan  of  that  amount  previously  authorized ;  ten  millions  to 
be  used  in  the  payment  of  ten  millions  previously  borrowed. 
These  notes  were  to  run  only  for  one  year,  were  to  bear  five 
and  two-fifths  per  cent  interest,  were  a  legal  tender  in  the 
payment  of  all  debts  to  the  Government,  and  to  be  otherwise 
like  previous  issues. 

On  February  24,  181 5,  Congress  authorized  the  issue 
of  twenty-five  millions  in  treasury  notes,  in  addition  to  the 
other  issue,  and  it  appears  from  Sections  3  and  5  that  ]\Ir. 
Jefferson's  influence  was  prevailing  over  Congress,  notwith- 
standing ulterior  influences.  Section  3  of  the  act  reads  as 
follows :  — 

"  That  the  treasury  notes  shall  be  prepared  of  such 
denominations  as  the  secretary  of  the  treasury,  with  the 
approbation  of  the  president  of  the  United  States,  shall 
from  time  to  time  direct ;  and  such  of  the  said  notes  as  shall 
be  of  a  denomination  less  than  one  hundred  dollars,  shall  be 
payable  to  the  bearer,  and  be  transferable  by  delivery  alone, 
and  shall  bear  no  interest ;  and  such  of  the  said  notes  as  shall 
be  of  the  denomination  of  one  hundred  dollars  or  upwards, 
may  be  made  payable  to  order,  and  transferable  by  deliv- 
ery and  assignment,  indorsed  on  the  same,  and  bearing  in- 
terest from  the  day  on  which  they  shall  be  issued  at  the  rate 
of  five  and  two-fifths  per  cent  per  annum ;  or  they  may  be 
made  payable  to  bearer,  and  transferable  by  delivery  alone, 
and  bearing  no  interest,  as  the  secretary  of  the  treasury, 
with  the  approbation  of  the  president  of  the  United  States, 
shall  direct." 


The  National-Bank  Faction  151 

Section  4  of  said  act  provides  that  the  holders  of  the 
non-interest-bearing  treasury  notes  may  present  them  at  any 
time  in  sums  of  not  less  than  one  hundred  dollars  at  the 
treasury  of  the  United  States  for  redemption  in  certificates 
of  funded  seven-per-cent  stock,  and  those  bearing  interest 
for  the  redemption  in  certificates  of  six-per-cent  funded 
stock. 

Section  5  provides  that  all  treasury  notes  so  surrendered, 
as  well  as  those  received  in  the  payment  of  taxes,  duties,  or 
demands,  in  the  manner  hereinafter  provided,  shall  be  re- 
issued. 

These  notes  were  made  legal  tenders  for  all  debts  of  the 
United  States,  but  not  for  private  debts.  They  were  issued 
to  circulate  as  money,  and  to  take  the  place  of  the  notes  of 
the  suspended  banks.  They  were  not  redeemable  in  coin, 
for  they  were  issued  to  aid  the  coins  in  effecting  exchange 
of  products ;  and  if  at  any  time  they  should  not  be  needed 
for  that  purpose,  they  could  be  exchanged  for  interest-bear- 
ing bonds,  or  funded  stock,  as  it  was  then  called. 

The  denominations  in  which  they  were  to  be  issued  was 
left  to  the  secretary  and  the  president ;  and  when  the  notes 
were  received  by  the  Government,  they  were  not  to  be  can- 
celed, but  were  to  be  reissued  indefinitely.  The  only  defect 
in  the  last  issue  was  the  failure  to  make  them  legal  tenders 
in  the  payment  of  private  debts. 

The  hard-money  factions  were  conscious  that  the  use 
which  could  and  would  be  made  of  these  treasury  notes,  as 
mediums  of  payment,  by  the  people,  would  be  so  valuable 
to  them  that  they  would  be  preferred  to  bank-notes,  and  on 
account  of  the  superior  convenience  in  handling  them,  they 
would  be  preferred  over  gold  and  silver  coins. 

The  fact  that  they  were  issued  by  the  Government,  and 
were  received  by  the  Government  in  payment  of  dues  and 


152  The  Legal-Tender  Problem 

taxes,  made  them  such  safe  mediums  of  payment,  and  so 
satisfactory  to  the  trading  and  commercial  people,  that,  as 
in  the  case  of  the  credits  of  the  Bank  of  Venice,  they  were 
too  valuable  as  mediums  of  payment  for  the  wealthy  to 
secure  them  to  be  exchanged  for  Government  securities. 

The  result  would  have  been  that  these  notes  would  have 
remained  actively  and  continuously  in  circulation,  excluding 
from  circulation  just  that  many  bank-notes ;  and  their  effi- 
ciency and  general  acceptance,  as  mediums  of  payment, 
would  have  demonstrated  the  propriety  and  wisdom  of  the 
Government's  issuing  enough  to  supply  the  demand  for  a 
circulating  currency,  and  have  done  away  with  the  artificial 
necessity  for  the  issue  of  bank-notes. 

There  was,  therefore,  a  combination  of  the  hard-money 
faction,  the  bankers,  and  the  capitalists  to  drive  these  notes 
out  of  circulation  and  create  a  demand  for  money,  in  order 
that  they  might  issue  more  bank-notes. 

The  first  move  to  that  end  was  made  by  the  First  Bank 
of  the  United  States,  which  was  in  process  of  liquidation. 

A  large  debt  was  still  due  this  bank,  and,  though  pressing 
for  payment  of  its  debts,  it  refused  to  receive  these  treasury 
notes.  Inasmuch  as  they  were  not  a  legal  tender  for  the  pay- 
ment of  private  debts,  the  bank  had  the  right  to  refuse  them. 
This  action  compelled  those  who  owed  the  bank  to  refuse 
them,  and  so  they  were  forced  to  a  discount.  It  is  only  too 
evident  that  this  was  done  to  drive  the  treasury  notes  out 
of  circulation,  and  thereby  create  such  a  demand  for  currency 
as  would  force  Congress  to  grant  them  a  charter  for  a  bank 
to  issue  notes,  and  that  it  was  not  done  from  any  sense  of 
the  insecurity  of  the  value  of  the  treasury  notes,  which  were 
exchangeable  for  a  six-  or  seven-per-cent  Government  obli- 
gation. 

If  the  notes  had  been  given  the  quality  of  legal  tender  for 


The  National-Bank  Faction  i53 

the  payment  of  private  debts  as  well  as  public  dues,  this 
could  not  have  happened;  but  as  it  was,  the  omission  was 
fatal. 

Their  purpose  of  discrediting  the  treasury  notes  having 
been  accomplished,  Congress,  instead  of  passing  an  act  mak- 
ing the  notes  a  legal  tender  for  private  debts,  granted  them 
a  charter  for  a  bank.  The  charter  provided  that  the  bank 
should  take  from  the  Government,  as  part  of  its  capital,  fif- 
teen millions  of  these  same  treasury  notes,  in  order  that  they 
might  be  kci)t  out  of  circulation. 

Mr.  Madison,  in  vetoing  this  bill,  stated  in  his  message 
of  January  30,  1815,  that  "  the  direct  effect  of  this  operation 
is  simply  to  convert  fifteen  millions  of  treasury  notes  into 
fifteen  millions  of  six-per-cent  stock ; "  and  that  "  the  bank 
as  proposed  to  be  constituted  can  not  be  relied  on  during 
the  war  to  provide  a  circulating  medium,  nor  to  furnish 
loans  or  anticipations  of  public  revenue." 

Peace  was  formally  declared  February  18,  1815,  and  the 
president,  in  his  seventh  annual  message,  dated  December  5, 
1815,  stated  "that  the  national  debt  on  the  first  of  October 
last  was  $120,000,000;  $39,000,000  of  which  was  the  debt 
before  the  commencement  of  the  war,  $64,000,000  the 
funded  debt  contracted  during  the  war,  and  $17,000,000 
the  unfunded  and  floating  debt,  including  the  various  issues 
of  the  treasury  notes  that  are  gradually  being  paid. 

"  That  a  uniform  national  currency  should  be  restored  to 
the  community.  .  .  .  That  the  absence  of  the  precious  metals 
will,  it  is  believed,  be  a  temporary  evil,  but  until  they  can 
again  be  rendered  the  general  medium  of  exchange,  it 
devolves  on  the  wisdom  of  Congress  to  provide  a  substitute 
which  shall  equally  engage  the  confidence  and  accommodate 
the  wants  of  the  citizens  throughout  the  Union. 

"  If  the  operation  of  the  State  banks  can  not  produce  this 


154  The  Legal-Tender  Problem 

result,  the  probable  operation  of  a  national  bank  will  merit 
consideration  :  and  if  neither  of  these  expedients  be  deemed 
effectual,  it  may  become  necessary  to  ascertain  the  terms 
upon  which  the  notes  of  the  Government  (no  longer  required 
as  an  instrument  of  credit)  shall  be  issued  upon  motives  of 
general  policy  as  a  common  medium  of  circulation." 

This  classification  of  Mr.  Aladison  that,  while  the  country 
was  awaiting  the  return  of  gold  and  silver,  he  would  be  will- 
ing to  again  experiment  with  the  unconstitutional  State-bank 
system,  and  then  with  the  equally  unconstitutional  national- 
bank  system,  before  he  would  undertake  to  ascertain  the 
terms  upon  which  the  Government  would  be  allowed  to  issue 
its  notes,  would  seem  strange  coming  from  a  president  of 
the  United  States,  under  the  experience  of  the  preceding 
twenty-five  years,  did  we  not  recall  his  questionable  con- 
duct while  a  member  of  the  Constitutional  Convention,  and 
the  language  in  his  veto  of  the  bank  charter,  which  dis- 
missed the  question  of  the  constitutional  authority  of  Con- 
gress to  establish  an  incorporated  bank,  because  of  repeated 
recognitions  of  the  validity  of  the  institution  by  acts  of 
the  legislative,  executive,  and  judicial  branches  of  the  Gov- 
ernment, accompanied  as  they  have  been  by  indications  in 
different  modes  of  a  concurrence  of  the  general  will  of  the 
nation. 

These  observations  were  untrue  so  far  as  the  judicial 
branch  of  the  Government  was  concerned,  for  the  question 
of  the  constitutionality  of  neither  State  nor  national  banks 
had  been  before  the  Federal  court  of  last  resort ;  nor  is  he 
justified  in  construing  the  enforced  necessity  for  Congress 
and  the  States  to  authorize  banks  to  issue  notes,  and  the 
acquiescence  of  the  people  therein  because  of  the  conditions 
that  unwise,  selfish  legislation  had  placed  about  them,  as  a 
"  concurrence  of  the  general  will  of  the  nation." 


XV 
The  Second  Bank   of  the   United  States 

Encouraged  by  the  expression  of  these  sentiments  from 
a  retiring  chief  executive,  the  hard-money  faction  pressed 
Congress  so  vigorously  to  grant  them  a  charter  for  a  bank, 
that  the  FederaHsts,  with  the  assistance  of  enough  Repub- 
Hcans  of  the  ilk  of  Mr.  Madison,  succeeded  in  giving  them 
one  on  April  lo,  i8r6. 

The  capital  of  $35,000,000  was  composed  of  $21,000,000 
of  the  funded  interest-bearing  debt  of  the  United  States  and 
$7,000,000  in  coins,  to  be  paid  by  the  subscribers  to  the 
stock ;  the  balance,  $7,000,000,  was  taken  by  the  Govern- 
ment, and  paid  in  coin. 

The  charter  provided  that  no  other  bank  should  be  estab- 
lished by  any  future  law  of  the  United  States  for  twenty 
ye'krs,  and  it  authorized  the  issue  of  notes  in  denominations 
not  less  than  five  dollars  as  legal  tenders  in  payment  of  all 
taxes  and  dues  to  the  United  States. 

The  most  distinguished  feature  of  the  charter  is  "  that 
in  consideration  of  the  exclusive  privileges  and  benefits 
conferred  by  this  act  upon  the  said  bank,  it  shall  pay  to  the 
United  States  $1,500,000." 

The  obligation  of  the  Government  to  provide  for  the 
welfare  of  the  people  seems  to  have  been  fully  resolved  when 
the  Government  was  taken  into  copartnership  with  the 
bankers,  and  paid  $1,500,000,  in  consideration  of  its  taking 
$7,000,000  of  the  bank-stock,  and  agreeing  to  deposit  all  its 
collections  in  the  bank,  and  receive  the  notes  of  the  bank  in 
payment  of  all  dues  and  taxes. 

155 


156  The  Legal-Tender  Problem 

The  act  granting  the  charter  to  the  second  bank  was 
drafted  to  meet  the  decision  that  Chief  Justice  Marshall  had 
previously  rendered  in  the  case  of  the  First  Bank  of  the 
United  States  vs.  Deveaux,  at  the  February  Term,  1809. — 
5  Cranch's  R.,  page  61. 

The  facts  in  that  case  are  as  follows:  In  1805,  the  State 
of  Georgia  passed  a  law  taxing  the  branch  bank  of  the  First 
Bank  of  the  United  States  at  Savannah.  The  bank  refu- 
sing to  pay  the  tax,  the  State  officers  entered  the  bank,  and 
seized  two  thousand  dollars,  the  amount  of  the  tax. 

The  bank  thereupon  sued  the  officers,  Deveaux  &  Rob- 
ertson, in  the  Circuit  Court  of  the  United  States.  The 
defendants  plead  want  of  jurisdiction  upon  the  part  of  that 
court ;  the  plea  was  sustained,  and  the  bank  appealed  the 
case  to  the  Supreme  Court  of  the  United  States. 

On  March  15,  1809,  that  court  decided  that  no  right 
was  conferred  on  the  bank  by  the  act  of  incorporation  to 
sue  in  the  Federal  courts,  notwithstanding  the  act  read  that 
the  bank  had  the  right  "  to  sue  and  be  sued,  plead  and  be 
implead,  answer  and  be  answered,  defend  and  be  defended, 
in  courts  of  record,  or  any  other  place  whatsoever." 

Even  at  that  early  period,  before  the  warfare  between 
the  two  banking  systems  had  become  serious  to  the  national 
bank,  then  in  control  of  the  management  of  the  financial 
policy  of  the  Government,  it  is  evident  that  the  court  was 
determined  to  take  care  of  the  interest  of  the  bank,  and  pro- 
tect it  from  State  legislation. 

For  though  the  court  held  that  the  bank  as  a  corporation 
could  not  sue  for  the  recovery  of  the  two  thousand  dollars,  it 
decided  that  the  officers  and  stockholders,  as  citizens  of 
another  State  than  the  State  of  Georgia,  could  sue  the  de- 
fendants, citizens  of  the  State  of  Georgia,  for  the  recovery 
of  the  two  thousand  dollars  seized. 


The  Second  Bank   of  the   U.  S.  i57 

It  was  held  by  the  court,  that  though  a  corporation  might 
not  be  a  "citizen"  in  the  sense  in  zvhich  the  zvord  "cit- 
izen "  had  been  used  in  the  Constitution  in  giz'itig  the  cit- 
izens of  one  State  the  right  to  sue  the  citizen  of  another 
State  in  the  Federal  courts,  it  would  look  beyond  the  cor- 
poration as  a  faculty,  and  determine  from  its  members 
whether  it  was  composed  of  citizens  of  another  State. 

In  doing  this,  inasmuch  as  it  appeared  that  the  citizens 
of  Pennsylvania  owned  the  stock  of  the  bank,  the  Court 
decided  that  they  had  the  right  to  bring  the  action  against 
the  defendant  in  the  Federal  courts  ;  and  since  they  had  this 
right  as  citizens  of  another  State,  it  was  not  error  to  bring 
the  suit  in  the  corporate  name  of  the  bank. 

Chief  Justice  Marshall  was  fully  aware  that  the  framers 
of  the  Constitution  would  not  give  Congress  the  power  to 
create  a  corporation  ;  that  they  would  not  let  the  word  or 
idea  of  a  corporation  appear  in  the  Constitution  for  fear 
it  would  be  abused  by  chartering  a  bank ;  that  they  depre- 
cated the  fact  that  the  States  had  the  power  to  create  cor- 
porations, and  would  permit  no  regulation  over  the  exercise 
of  that  power ;  and  that  it  was  the  intention  of  the  framers 
of  the  Constitution  in  using  the  word  "  citizen  "  or  "  cit- 
izens," in  describing  those  who  had  the  right  to  sue  in  the 
Federal  courts,  to  exclude  corporations. 

And  yet  he  availed  himself  of  the  first  opportunity,  in 
his  intention  to  take  care  of  the  interest  of  the  money  power, 
to  judicially  legislate  into  the  meaning  of  the  word  "  cit- 
izen "  the  construction  that  the  wisdom  of  the  framers  of 
the  Constitution  had  excluded. 

That  Mr.  Marshall  was  conscious  of  what  he  was  doing, 
but  regardless  of  the  consequences,  so  that  he  took  care  of 
the  Bank  of  the  United  States,  is  evident  from  the  follow- 
ing:— 


158  The  Legal-Tender  Problem 

In  1809,  it  was  deemed  sufficient  to  reimburse  the  bank 
for  the  money  that  had  been  forcibly  collected  by  the  State 
officers ;  therefore  nothing  was  said  about  the  right  of  the 
State  to  impose  a  tax.  This  was  virtually  admitted,  and  it 
was  only  a  question  of  the  method  of  procedure  on  the  part 
of  the  States  to  collect  the  tax. 

It  became  different  after  181 1,  when  the  renewal  of  the 
charter  was  refused  by  Congress,  and  the  owners  of  the 
institution  experienced  not  only  the  effect  of  the  influence 
and  teachings  of  Mr.  Jefferson,  but  realized  the  possibility 
of  its  destruction  by  such  action  as  the  assessment  of  a  tax 
and  a  decree  of  the  Supreme  Court  of  a  State  for  its  collec- 
tion. The  decision  of  the  Supreme  Court  of  the  United 
States,  though  it  saved  the  owners  of  the  bank  from  the  loss 
of  the  two  thousand  dollars,  failed  to  realize  the  necessity  of 
holding  that  the  States  did  not  have  the  power  to  assess  and 
collect  the  tax. 

In  view  of  this  decision,  wherein  the  Court  was  forced 
to  hold  that  it  did  not  have  jurisdiction,  and  resorted  to 
the  legal  subterfuge  of  deciding  that  it  would  look  beyond 
the  corporation  as  a  faculty,  and  determine  from  its  mem- 
bers whether  it  was  composed  of  citizens  of  another  State, 
the  act  of  April  10,  1816,  granting  a  charter  to  the  Second 
Bank  of  the  United  States,  endeavors  to  confer  jurisdiction 
upon  the  Federal  courts  in  the  following :  — 

"  To  sue  and  be  sued in  all  State  courts  having 

competent  jurisdiction,   and   in   any   Circuit   Court   of   the 
United  States." 

It  will  be  seen  in  subsequent  pages  how  material  were 
these  words,  "  in  any  Circuit  Court  of  the  United  States," 
to  the  interest  of  the  owners  of  the  bank,  notwithstanding 
Chief  Justice  Marshall  had  said,  "  If  the  Constitution  would 
authorize  Congress  to  give  the  courts  of  the  Union  juris- 


The  Second  Bank   of  the   U.  S.  I59 

diction  in  this  case,  in  consequence  of  the  character  of  the 
members  of  the  corporations, .then  the  judicial  act  ought 
to  be  construed  to  give  it." 

It  is  evident,  that  if  the  Constitution  did  not  intend  to 
give  Congress  the  power  to  create  a  corporation  from  the 
fear  that  it  would  be  abused  by  the  creation  of  a  bank,  it 
did  not  intend  "  to  authorize  Congress  to  give  the  courts  of 
the  Union  jurisdiction  in  this  case  in  consequence  of  the 
character  of  the  members  of  a  corporation  "  that  it  had  with- 
held the  power  from  Congress  to  create. 


XVI 

The  Fight  Against  the   Treasury  Notes 
■  Continued 

The  supremacy  of  the  State  banks  from  1811  to  1816, 
and  the  use  of  treasury  notes  during  the  war  with  England, 
awakened  the  national-bank  faction  to  an  intense  realization 
of  what  the  loss  of  the  control  of  the  Government  was  to 
their  interest ;  and,  as  has  been  shown,  they  made  herculean 
efforts  to  overthrow  both  the  State-bank  and  treasury-note 
systems,  and  force  their  own  once  more  upon  the  country. 
They  entertained  a  far  more  wholesome  fear  of  the  issuance 
of  treasury  notes  than  they  did  of  the  issuance  of  notes  by 
State  banks. 

Under  the  influence  of  Mr.  Jefferson,  Congress  was 
being  educated  to  a  proper  understanding  of  the  subject 
of  the  finances,  and  the  right  and  duty  of  the  Government 
to  furnish  directly  to  the  people,  without  the  intervention 
of  a  bank,  State  or  national,  a  full  supply  of  circulating 
currency. 

Congress  had  improved  and  progressed  in  the  method 
of  the  issuance  of  treasury  notes  until  it  had  authorized 
their  issue  in  small  denominations,  non-interest-bearing,  non- 
redeemable  in  coin,  legal  tenders  for  all  Government  dues 
and  taxes,  and  only  redeemable  by  surrender  and  exchange 
for-  interest-bearing  obligations  of  the  Government,  if  the 
people  preferred  this  course  to  that  of  using  them  as  medium 
of  payment. 

If  they  had  been  made  a  legal  tender  for  the  payment  of 
private  debts,  they  would  have  proved  to  be  an  ideal  issue ; 
160 


Fight  Against   the   Treasury  Notes        i6i 

for  it  would  not  have  been  in  the  power  of  the  hard-money 
faction  to  have  affected  their  use  and  consequently  their 
value  as  mediums  of  payment.  It  would  have  been  impos- 
sible for  them  to  have  secured  the  notes  to  be  exchanged  for 
six-  or  seven-per-cent  bonds,  because  as  mediums  of  pay- 
ment they  would  have  been  so  much  more  convenient  to 
handle  than  gold  and  silver  coin,  and  so  much  safer  than 
either  national  or  State  bank-notes,  that,  like  the  credits  of 
the  Bank  of  Venice,  they  would  have  been  too  valuable  in 
use  to  exchange  for  a  mere  interest-bearing  obligation. 

The  heresy  that  was  dominant  at  that  time,  and  is  dom- 
inant to-day, —  that  they  must  not  be  made  a  legal  tender 
for  private  debts, —  possessed  Congress;  and  Mr.  Jeft'erson 
unable  to  induce  it  to  take  that  step,  hoped,  by  giving  them 
the  right  to  be  exchanged  for  interest-bearing  obligations, 
to  affix  to  them  such  a  value  as  an  investment  that  the  hard- 
money  faction  would  not  exercise  their  right  to  refuse  them 
in  payment  of  private  debts. 

If  this  bait  thrown  to  the  avarice  of  the  hard-money 
faction  had  been  accepted,  and  the  treasury  notes  permitted 
to  show  their  efficiency  as  a  circulating  currency  for  a  few 
years,  it  would  have  been  an  experience  and  demonstration 
that  would  have  educated  the  people  to  an  understanding 
and  appreciation  of  the  correct  manner  of  supplying  them 
with  a  full  supply  of  mediums  of  payment. 

Mr.  Jefferson,  in  the  hope  that  this  experience  would 
demonstrate  in  practise  the  truth  of  his  theories,  was  busy 
teaching  that  the  issue  of  all  treasury  notes  should  be  "  bot- 
tomed on  taxes  ;  "  in  other  words,  that  they  should  be  a  pure 
legal-tender  circulating  currency  for  the  payment  of  all 
debts,  public  and  private,  and  redeemable  only  in  the  sense 
that  as  solvents  of  debts,  they  are  redeemed,  so  far  as  the 
owner  is  concerned,  every  time  they  pay  his  debt, 
u 


i62  The  Legal-Tender  Problem 

The  members  of  the  hard-money  faction  were  as  con- 
scious and  keenly  aHve  in  their  far-seeing  and  intelHgent 
inhuman  avarice,  as  Mr.  Jefferson  was  in  his  patriotism  and 
statesmanship,  of  his  heroic  efforts  to  make  the  Declaration 
of  Independence  complete  by  freeing  the  people  and  the 
Government  from  the  tyranny  and  oppression  of  the  hard- 
money  cormorants. 

Notwithstanding  they  had  been  forced  out  of  the  na- 
tional-bank business  since  1811,  did  not  desire  to  invest 
their  money  in  State  banks,  and  were  importuning  Congress 
to  grant  them  a  charter  for  another  bank,  they  were  too 
intelligently  greedy  to  accept  the  present  offer  of  a  safe  inter- 
est-bearing Government  investment,  and  allow  Mr.  Jeffer- 
son's theories  of  finance  to  take  root,  and  find  lodgment  in 
the  practises  of  the  people. 

Mr.  Jefferson  exerted  his  influence  at  a  time  when  he 
had  the  right  to  suppose  that  he  had  the  presidential 
power  with  him,  for  Mr.  Madison  was  in  harmonious 
accord  with  his  efforts  until  sometime  after  January 
30,  18 1 5,  the  date  he  vetoed  the  act  granting  a  charter 
to  the  Second  Bank  of  the  United  States;  but  a  great 
change  seems  to  have  come  over  him  between  that  time 
and  December  5,  181 5,  when,  in  his  seventh  annual  mes- 
sage, he  penned  the  following :  "  The  probable  operation  of 
a  national  bank  will  merit  consideration."  On  April  10, 
1816,  when  he  approved  the  bill  granting  the  charter  to  the 
bank,  his  surrender  was  complete. 

In  his  eighth  annual  message,  December  3,  1816,  page 
578,  he  appears  as  the  tool  of  the  money  power,  as  the  fol- 
lowing discloses :  — 

"  Upon  this  general  view  of  the  subject  it  is  obvious 
that  there  is  only  wanting  to  the  fiscal  prosperity  of  the 
Government  the  restoration  of  a  uniform  medium  of  ex- 


Fight  Against   the   Treasury  Notes        163 

change.  The  resources  and  the  faith  of  the  nation,  displayed 
in  the  system  which  Congress  has  estabhshed,  insures  respect 
and  confidence  both  at  home  and  abroad.  The  local  accu- 
mulations of  the  revenue  have  already  enabled  the  treasury  to 
meet  the  engagements  in  the  local  currency  of  most  of  the 
States,  and  it  is  expected  that  the  same  cause  will  produce 
the  same  effect  throughout  the  Union ;  but  for  the  com- 
munity at  large,  as  well  as  for  the  purpose  of  the  treasury, 
it  is  essential  that  the  nation  should  possess  a  currency  of 
equal  value,  credit,  and  use  wherever  it  may  circulate.  The 
Constitution  has  intrusted  Congress  exclusively  with  the 
power  of  creating  and  regulating  a  currency  of  that  de- 
scription, and  the  measures  which  were  taken  during  the 
last  session  in  execution  of  the  power,  give  every  promise 
of  success.  The  bank  of  the  United  States  has  been  organ- 
ized under  auspices  most  favorable,  and  can  not  fail  to  be 
an  important  auxiliary  to  those  measures." 

After  the  grant  by  Congress  to  a  national  bank  of  "  the 
power  exclusively  entrusted  to  it  by  the  Constitution,"  and 
the  invitation  of  the  president  to  force  on  the  country  a 
uniform  medium  of  exchange  for  the  interest  of  the  com- 
munity at  large,  as  well  as  for  the  purpose  of  the  treasury, 
it  should  not  be  cause  of  surprise  that  the  bank  demanded 
(inasmuch  as  it  had  paid  the  Government  $1,500,000  for 
the  monopoly  of  issuing  currency  for  the  next  twenty  years) 
that  the  treasury  notes  outstanding  should  be  deprived  of 
the  legal-tender  quality,  and   retired   from   circulation. 

In  response  to  this  demand.  Congress  passed,  and  the 
president  approved,  March,  181 7,  an  act  to  repeal  all  laws 
authorizing  the  issue  of  treasury  notes,  and  provided  that  all 
treasury  notes  that  should  become  the  property  of  the  Gov- 
ernment should  be  canceled,  not  reissued.  Though  the 
treasury  notes  were  not  a  legal  tender  for  the  payment  of 


i64  The  Legal-Tender  Problem 

private  debts,  and  were  being  discriminated  against  by  the 
hard-money  faction  and  the  Government,  the  people  found 
them  so  efficient  as  mediums  of  payment  that  they  con- 
tinued to  use  them  for  that  purpose. 

It  appears  that  a  ruhng  was  made  that  they  would  not 
be  received  anywhere  but  at  the  treasury,  and  in  1818  a 
firm  in  Boston  tendered  treasury  notes  in  payment  of  duties 
on  imports.  The  coUector  of  the  port  refused  to  receive 
them,  notwithstanding  they  were  a  legal  tender  in  the  pay- 
ment of  all  dues  and  taxes  to  the  United  States. 

The  Government  thereupon  was  forced  to  bring  suit  for 
the  duties ;  tender  of  the  treasury  notes,  with  accrued  inter- 
est, was  plead;  and  Judge  Story  (23  Federal  Cases,  page 
1 124)  decided  that  the  treasury  notes  with  the  accrued  inter- 
est w^ere  legal  tenders  for  everything  for  which  the  law 
makes  them  receivable.  The  national-bank  faction  was 
afraid  to  appeal  from  this  decision  at  that  time,  and  the 
notes  continued  to  be  used  by  the  people  as  mediums  of  pay- 
ment. 


XVII 

The  State  Banks  Attempt  to  Destroy  the  Bank  of 

the  United  States 

The  State-bank  faction,  though  defeated  and  deprived 
of  the  control  of  the  Government,  did  not  despair,  but  was 
preparing  for  a  fight  to  the  death  of  one  or  the  other,  if 
not  both,  of  the  banking  systems,  A  branch  of  the  national 
bank  had  been  established  at  Baltimore,  Aid.,  and  in  1818 
the  Legislature  of  that  State  passed  a  law  to  tax  all  banks 
or  branches  thereof  in  the  State  not  chartered  by  the  Legis- 
lature. The  Legislature  of  Maryland  was  endeavoring  to 
do  in  behalf  of  the  State  bank  what  Congress  has  since  done 
for  the  national  bank  against  the  State  bank  —  tax  it  out  of 
existence.  If  this  could  be  done  by  one  State,  it  could  be 
done  by  all ;  and  the  result  would  have  been  that  the  national 
bank  would  have  been  taxed  out  of  one  State  after  another, 
as  the  State  banks  got  control,  until  it  would  have  been 
confined  to  such  a  limited  territory  as  to  greatly  impair,  if 
not  destroy,  its  efficiency  as  a  money-making  scheme  for  its 
promoters. 

The  branch  bank  refused  to  pay  the  tax,  and  one  John 
James,  for  himself  and  the  State  of  Maryland,  sued  McCul- 
lougli,  the  cashier.  Judgment  was  given  by  the  State  courts 
against  McCullough  for  the  payment  of  the  tax,  and  tlie 
case  was  appealed  to  the  Supreme  Court  of_  the  United 
States.  It  was  evident  that  the  Legislature  of  Marvland 
passed  the  act  taxing  the  branch  bank  solely  in  the  interest 
of  the  State  banks,  and  that  it  was  the  intention  to  drive  it 
out  of  the  State. 

165 


i66  The  Le^al-Tender  Problem 

The  warfare  at  this  time  between  the  two  bank  factions 
for  control  in  the  affairs  of  the  Government  is  one  of  the 
most  crucial  periods  in  the  history  of  the  country.  If  the 
State-bank  faction  could  succeed  in  getting  the  Supreme 
Court  to  decide  the  issues  raised,  according  to  correct  rea- 
son, sound  logic,  and  in  the  interests  of  the  people,  the  false 
theory  of  the  national-bank  system  would  be  forever  elim- 
inated from  the  policies  of  the  country.  If  this  had  been 
done,  the  national-bank  faction  could,  with  equal  assur- 
ance of  success,  have  challenged  the  equally  false  State- 
bank  system  before  the  bar  of  the  Supreme  Court,  and  upon 
the  application  by  that  tribunal  of  the  same  correct  reason 
and  honest  logic  to  the  issues  raised,  have  eliminated  it  for- 
ever from  the  policies  of  the  country.  With  both  systems 
eliminated,  the  Government  would  have  been  forced  to 
supply  additional  currency,  in  order  that  it  might  relieve 
the  people  from  the  evils  of  a  scarcity  of  money. 

In  the  consideration  of  this  momentous  question  the 
wisdom  of  Congress  could  not  have  overlooked  the  fact  that 
on  the  occasion  of  the  war  with  England,  the  two  systems 
(one  in  full  operation,  and  in  charge  of  the  Government; 
the  other  in  operation,  but  undergoing  liquidation)  com- 
bined, assisting  gold  and  silver,  were  not  equal  to  the  emer- 
gency, and  had  to  summon  treasury  notes  to  their  aid. 

Under  such  circumstances  the  enforced  consideration 
by  Congress  of  treasury  notes, —  their  efficiency  as  mediums 
of  payments,  their  continuous  use  and  retention  by  the  peo- 
ple even  against  legislative  action  to  retire  them, —  would 
have  developed  the  conclusion  that  the  Constitution,  in 
withholding  from  Congress  the  power  "  to  emit  bills  on  the 
credit  of  the  United  States,"  attempted  to  deprive  the  Gov- 
ernment of  its  most  essential  act  of  sovereignty.  It  would 
have  discovered  that  all  the  impositions  practised  upon  the 


The  IVar  of  the  Banks  167 

people, —  depriving  them  of  their  i)roperty  and  retarding 
their  prosperity, —  were  caused  by  the  officials  of  the  Gov- 
ernment turning  over,  first  to  the  national-bank  faction 
and  then  the  State-bank  faction,  the  purely  governmental 
function  that  should  have  been  exercised  by  Congress ;  viz., 
that  of  furnishing  a  full  supply  of  circulating  currency 
direct  to  the  people. 

One  consideration  alone  would  have  shown  conclusively 
that  the  issuance  of  treasury  notes  was  pure  and  scientific, 
both  in  theory  and  practise,  and  that  is  that  in  time  of  war, 
gold,  silver,  and  Ijank-notes  are  failures,  and  treasury  notes 
are  invariably  resorted  tn  and  relied  on. 

An  examination  of  the  past  history  of  the  country,  and 
especially  the  history  of  the  framing  of  the  Constitution  with 
a  view  to  perfect  the  financial  system,  would  have  shown 
that  Congress  was  a  body  of  delegated  and  not  implied 
powers ;  and  though  the  assertion  and  practise  of  the  doc- 
trine of  implied  power  would  prove  necessary  and  be  jus- 
tified at  times,  it  could  never  be  constitutionally  exercised 
m  favor  of  the  power  that  had  been  intentionally  withheld 
from  Congress  against  the  exercise  of  the  sovereign  power 
that  an  erroneous  attempt  had  been  made  to  withhold. 

As  has  heretofore  been  shown,  the  power  to  grant  a 
charter  of  incorporation  was  in  two  instances  withheld  from 
Congress,  and  while  it  is  admitted  that  an  endeavor  was 
made  to  withhold  the  sovereign  power  to  emit  bills  of  credit 
also,  it  is  not  understood  how  Congress  could  charter  a 
bank  and  give  the  bank  the  right  to  emit  bills  of  credit,  and 
at  the  same  time  deny  itself  the  right  to  exercise  its  sov- 
ereign power  of  issuing  treasury  notes  upon  the  ground 
that  it  was  unconstitutional. 

It  would  have  been  ascertained  that  the  thing  which  the 
framers  of  the  Constitution  most  feared  from  the  proposi- 


1 68  The  Le^al-Tetider  Problem 

tion  to  give  Congress  the  power  to  grant  charters  of  incor- 
poration—  the  creation  of  a  bank  —  was  done  in  179!,  and 
that  this  institution  was  given  the  right  which  had'  been 
withheld  from  Congress  itself. 

It  would  have  been  realized  that  although  the  owners 
of  the  bank  turned  their  credit  into  money,  and  loaned  it 
at  high  rates  of  interest,  it  had  brought  no  adequate  .relief 
to  the  people,  nor  given  profitable  prices  to  products ;  but 
on  the  contrary,  the  want  of  additional  currency  was  such 
that  they  had  been  enabled  to  rob  the  people  of  their 
property. 

It  would  have  been  realized  that  this  condition  of  affairs 
forced  and  justified  the  States  in  coming  to  the  relief  of  the 
people  by  authorizing  their  banks  to  emit  bills  of  credit. 

It  would  have  been  realized  that  these  unconstitutional 
decisions  caused  such  oppression  of  the  people  that  Mr.  Jef- 
ferson endeavored  to  secure  relief  for  them  by  organizing 
the  Republican  party,  and  with  the  assistance  of  the  State- 
bank  faction,  turn  the  Bank  of  the  United  States  faction  out 
of  power. 

It  would  have  been  realized  that  the  one  faction,  under 
the  name  of  Federalist,  and  under  the  leadership  of  Hamil- 
ton and  Chief  Justice  Marshall,  stood  for  that  form  of  gov- 
ernment which  was  best  calculated  to  amass  large  fortunes 
for  the  privileged  few,  and  enhance  wealth  by  corporate 
activity  and  governmental  aid. 

It  would  have  been  seen  that  this  corporate  activity 
and  governmental  aid  is  utilized  in  their  interest  by  pro- 
tective tariff  laws,  by  the  granting  of  subsidies  and  fran- 
chises, by  turning  over  to  the  favored  few  the  monopoly 
of  supplying  the  circulating  currency  through  the  agency 
of  banks  of  issue,  and  by  the  enactment  of  any  and  all  laws 
necessary  to  nourish  and  foster  these  interests,  even  to  the 


The  JVar  of  the  Banks  169 

extent  of  invading  all  personal  rights,  and,  if  it  should  be- 
come necessary  to  protect  and  secure  the  possession  and 
enjoyment  of  the  ill-gotten  property  and  franchise  rights, 
distort  the  republic  into  a  strong  contralized  govcrnnicnt. 

It  would  have  been  realized  that  the  other  faction,  under 
the  name  of  Republican,  and  under  the  leadership  of  Mr. 
Jefferson,  stood  for  that  form  of  government  which  was 
best  calculated  to  preserve  and  protect  the  individual  in  his 
person,  right  of  free  speech,  freedom  of  conscience,  enjoy- 
ment of  the  products  of  his  labor,  and  pursuit  of  ha])piness, 
from  the  avaricious  aggressions  of  the  other  faction ;  and 
would  also  necessarily,  if  incidentally,  take  care  of  his  prop- 
erty, and  secure  to  him  and  his  posterity  the  enjoyment  of 
the  same. 

It  would  have  been  discovered  that  the  governmental 
means  by  which  these  ends  are  best  attained  are  tariff"  laws 
for  the  purpose  of  raising  revenues,  with-  incidental  protec- 
tion only ;  no  subsidies  whatever,  but  the  most  economical 
expenditure  of  the  people's  money ;  either  the  sale  of  the 
franchises  for  a  limited  period,  or  if  they  were  given  away; 
that  it  should  be  only  for  the  life  of  the  spendthrift  gen- 
eration, so  that  subsequent  people  might  have  the  power  to 
protect  themselves  and  their  interest,  as  changed  and  chang- 
ing conditions  might  make  necessary,  and  by  the  exercise 
of  sovereign  ])ower  issue  all  money  direct  to  the  people 
without  the  intervention  of  banks  of  issue,  making  it  a  full 
legal  tender,  and  redeemable  only  in  the  sense  that  can  be 
implied  from  Mr.  Jeff'erson's  phrase,  "bottomed  on  taxes." 

The  conditions  were  as  hereinbefore  set  forth  when  the 
State-bank  faction  in  Maryland,  by  the  imposition  of  a  tax 
upon  the  national  bank,  forced  the  Bank  of  the  I'nited 
States  to  appeal  to  the  Supreme  Court  of  the  United  States 
for  the  preservation  of  its  existence. 


XVIII 

The  Trustees  of  Dartmouth  College  vs.  IVoodard, 
4   Wheaton    (S.   C.  Rep.),  §18 

In  the  case  of  McCullo'ugh  vs.  The  State  of  Maryland, 
previously  referred  to,  it  was  contended  in  behalf  of  the 
State  that  Congress  had  no  power  to  incorporate  the  Bank 
of  the  United  States. 

Assuming  that  Congress  had  this  power,  it  was  con- 
tended in  behalf  of  the  bank  that  the  State  may  not  tax 
the  branch  bank  without  violating  the  Constitution. 

The  Supreme  Court  of  the  United  States  would  be  em- 
barrassed in  its  desire  to  aid  the  money  power,  even  if  it 
held  that  Congress  had  the  power  to  incorporate  a  bank,  so 
long  as  the  case  of  the  Bank  of  the  United  States  against 
Deveaux  stood  unreversed;  for  in  that  case  the  State  of 
Georgia  had  assessed  and  collected  a  tax  from  a  branch  of 
the  United  States  Bank,  and  the  Supreme  Court,  in  an 
opinion  delivered  by  Air.  Chief  Justice  Marshall,  refused  to 
give  the  bank,  as  a  corporation,  relief. 

It  was  therefore  necessary  to  get  this  case  out  of  the 
way,  or  in  some  manner  circumvent  the  principles  admitted 
in  its  decision,  before  it  would  do  to  permit  the  case  of 
McCullough  vs.  The  State  of  Maryland  to  come  to  a  deci- 
sion, if  it  was  the  intention  to  aid  the  Bank  of  the  United 

States. 

That  it  was  the  intention  of  the  Supreme  Court,  and 
those  who  controlled  its  decisions  at  that  time  in  such  cases 
as  they  desired,  to  aid  the  bank,  and  protect  it  in  the  future 
170 


Dartmouth   College   Case 


171 


from  State  Legislatures,  is  evident  from  a  decision  of  the 
court  on  February  2,  18 19,  a  little  over  a  month  prior  to  its 
decision  in  the  case  of  McCullough  vs.  the  State  of  Mary- 
land. The  case  decided  on  February  2,  18 19,  was  the  cele- 
brated case  of  The  Trustees  of  Dartmouth  College  vs. 
Woodard.     The  facts  in  that  case  are  as  follows :  — 

In  1769  the  king  of  Great  Britain  granted  a  charter  to 
Dartmouth  College,  in  the  Province  of  Xew  Hampshire. 
Under  this  charter  the  college  was  governed  by  trustees 
appointed  in  accordance  with  its  provisions  until  1816.  The 
college  was  originally  designed  as  a  charity  school  for  the 
education  of  Indians.  The  charter  was  an  elaborate  docu- 
ment, and  pointed  out  the  powers  conferred  and  the  man- 
ner of  their  exercise  wath  great  minuteness  of  detail.  It 
fixed  the  number  of  trustees  and  defined  their  powers  and 
duties,  and  declared  Dr.  Wheelock  to  be  the  founder  and 
president  for  life,  with  power  to  appoint  his  successor.  Dr. 
Wheelock  died  in  1779,  and  appointed  as  his  successor 
his  son,  John  Wheelock.  After  the  war  of  the  Revolution, 
dissensions  arose  among  the  trustees,  which  finally  cul- 
minated in  the  election  of  a  board  hostile  to  the  interests  of 
Dr.  John  Wheelock.  Dr.  John  W^ieelock,  who  had  been 
removed  from  the  presidency  of  the  college  by  tb.e  old  trus- 
tees, and  declared  unfit  to  hold  the  ofiice,  procured  in  1816 
the  passage  of  acts  by  the  Legislature  of  the  State  of  New 
Hampshire,  by  which  the  name  of  Dartmouth  College  was 
changed  to  Dartmouth  University,  the  number  of  trustees 
was  increased,  a  board  of  overseers  was  appointed,  and  other 
radical  changes  made  in  its  mode  of  government ;  and  for 
the  first  time  in  its  history  the  officers  were  required  to  take 
an  oath  to  support  the  Constitution  of  the  United  States 
and  of  the  State  of  New  Hampshire. 

The  real  object  of  the  law  was  to  place  Dr.  Wheelock 


1/2  The  Legal-Tender  Proble 


m 


and  his  friends  in  control  of  the  college.  The  new  board 
obtained  control  of  the  property,  the  books,  and  the  records 
of  college.  They  promptly  elected  officers  in  their  interest. 
The  old  board  determined  to  test  the  validity  of  this  law, 
and  suits  were  brought  against  William  H.  Woodard,  the 
treasurer  of  the  new  board,  for  the  conversion  of  the  books 
and  records  of  the  college,  the  common  seal  of  the  cor- 
poration, and  its  leases  and  accounts. 

When  Dr.  John  Wheelock  was  turned  out  of  the  office  of 
president,  he  very  naturally  supposed  that  the  Legislature 
of  the  State  of  New  Hampshire  succeeded  the  king  and  Par- 
liament of  England  in  the  control  of  the  corporation.  His 
conduct  indicated  that  he  did  not  deem  it  proper  to  apply 
to  the  courts  to  be  reinstated  until  he  had  secured  legislative 
relief,  for  it  was  not  reasonable  to  suppose  that  one  set  of 
Americans  would  be  turned  out  of  the  official  management 
of  the  affairs  of  the  corporation  to  secure  to  another  the 
unusual  personal  privileges  granted  in  the  charter  of  King 
George. 

After  the  Legislature  passed  the  acts  mentioned,  the 
contest  for  the  control  of  the  college  involved  no  important 
principle,  certainly  no  principle  of  property  rights ;  but  as 
soon  as  it  became  necessary  in  the  case  of  McCuUough 
against  the  State  of  Maryland  to  get  around  the  admission 
in  the  case  of  the  Bank  of  the  United  States  vs.  Deveaux, 
this  case  attracted  the  attention  of  the  financial  and  political 
factions,  and  was  made  the  chief  issue  between  the  Fed- 
eralists, under  the  leadership  of  Hamilton  and  Chief  Justice 
Marshall,  and  the  Republicans,  under  the  leadership  of 
Thomas  Jefiferson. 

Before  general  attention  was  attracted  to  the  fact  that 
the  Legislature  of  New  Hampshire  had  passed  a  law  vary- 
ing and  changing  the  terms  of  a  charter,   Dr.   Wheelock 


Dartmouth   College  Case  i73 

consulted  and  retained  Daniel  Webster,  paying  him  a  fee  to 
uphold  the  right  of  New  Hampshire  to  exercise  control  over 
the  institution ;  but  just  as  soon  as  the  issue  -was  made 
national  by  the  United  States  Bank  faction's  manifest  in- 
tention to  utilize  this  case  to  relieve  the  situation  in  the 
AlcCullough  case  of  the  embarrassment  caused  by  the 
decision  in  the  Deveaux  case,  Mr.  Webster  was  influenced 
to  withdraw  his  services  and  devote  them  to  the  interests  of 
the  bank. 

In  the  State  court  the  question  principally  discussed  was 
whether  the  law  making  the  changes  in  the  charter  was  war- 
ranted by  the  constitution  of  New  Hampshire.  Its  conflict 
with  the  United  States  Constitution  was  not  presented  as 
being  a  strong  point  in  the  case.  The  case  was  ably  argued 
before  the  State  court,  and  its  decision  was  unanimous  in 
support  of  the  validity  of  the  acts  of  the  Legislature. 

The  syllabus  of  the  opinion,  as  prepared  by  the  chief 
justice  of  the  Supreme  Court  of  New  Hampshire  (New 
Hampshire  Reports,  page  iii),  is  as  follows:  "Third.  The 
charter  of  the  Jcini^  creating  the  corporation  of  Dartmouth 
College,  is  not  a  contract  within  the  meaning  of  that  clause 
of  the  Constitution  of  the  United  States  zvhich  prohibits 
States  impairing  the  obligations  of  contracts." 

"  Mr.  Webster  in  a  letter  to  his  opponent,  Judge  Mason, 
said  of  it :  '  The  truth  is,  the  New  Hampshire  opinion  is 
.able,  ingenious,  and^plausiblc.'     And  Chancellor  Kent,  after 
carefully  examining  the  opinion,  commended  it  in  the  high- 
est terms,  and  concurred  in  all  its  conclusions." 

That  the  decision  was  correct,  and  the  reasons  given 
were  those  of  a  wise  judge,  is  only  too  evident  in  the  light 
of  the  experience,  practises,  and  abuses  that  have  grown 
up  under  its  reversal,  and  the  announcement  of  a  contrary 
doctrine. 


174  The  Legal-Tender  Problem 

The  opinion  of  the  New  Hampshire  Court  was  as  fol- 
lows :  "  Contract,  as  used  in  the  Constitution,  must  be 
taken  in  its  ordinary  and  common  acceptation,  as  an  actual 
agreement  between  parties,  by  which  something  is  granted 
or  stipulated  immediately  for  the  benefit  of  the  actual 
parties ;  "  but  that  it  was  never  intended  to  regulate  or 
limit  the  power  of  the  States  in  relation  to  their  public 
servants. 

The  Court,  in  conclusion,  says  :  "  If  the  charter  of  a  pub- 
lic institution  like  that  of  Dartmouth  College  is  to  be  con- 
strued as  a  contract  within  the  intent  of  the  Constitution 
of  the  United  States,  it  will,  in  our  opinion,  be  difficult  to 
say  what  powers,  in  relation  to  their  public  institutions,  if 
any,  are  left  to  the  States.  It  is  a  construction,  in  our  view, 
repugnant  to  the  very  principles  of  all  government,  because 
it  places  all  the  public  institutions  of  all  the  States  beyond 
legislative  control ;  for  it  is  clear  that  Congress  possesses 
no  power  on  the  subject."  The  Court  adds:  "We  are, 
therefore,  clearly  of  the  opinion  that  the  charter  of  Dart- 
mouth College  is  not  a  contract  within  the  meaning  of  this 
clause  of  the  Constitution  of  the  United  States." 

The  case  was  taken  to  the  Supreme  Court  of  the  United 
States  by  writ  of  error,  where  its  entire  charge  was  en- 
trusted to  Mr.  Webster;  and  its  decision  was  left  to  the 
influence  of  Chief  Justice  Marshall,  who,  as  one  of  the 
leaders  of  the  Federalist  party,  was  expected  to  take  care 
of  the  interests  of  the  money  power. 

The  case  of  The  Trustees  of  Dartmouth  College  vs. 
Woodard  lost  all  of  its  original  personality  and  individual 
interest  in  the  Supreme  Court,  became  the  most  prominent 
political  issue  of  the  day,  and  was  a  burning  question  be- 
tween the  Federalist  and  Republican  parties  where  Marshall 
and  Jefferson  took  opposite  sides. 


Dartmouth   College  Case  i75 

Mr,  Webster  was  retained  to  advance  reasons  that  would 
justify  the  reversal  of  the  decision  of  the  Supreme  Court  of 
New  Hampshire;  and.  if  necessary,  supplement  his  tower- 
ing capacity  with  all  his  adroitness  in  fomenting-  the  inten- 
sity of  the  hostility  between  Chief  Justice  Marshall  and  Mr. 
Jefiferson,  in  his  endeavor  to  secure  a  decision  that  would 
save  the  Bank  of  the  United  States,  and  all  other  corpora- 
tions, from  future  interference  by  State  Legislatures. 

In  his  argument  Mr.  Webster  laid  down  the  broad  prin- 
ciple that  "  the  Legislature  of  New  Hampshire  would  not 
have  been  competent  to  pass  the  acts  in  question,  and  to 
make  them  binding  on  the  plaintiff  without  their  assent, 
even  if  there  had  been,  in  the  constitution  of  New  Hamp- 
shire, or  of  the  United  States,  no  special  restriction  on  their 
part ;  "  because,"  as  he  claimed.  "  these  acts  are  not  the 
exercise  of  a  power  properly  legislative." 

He  argued  that  "  their  object  and  effect  is  to  take  away 
from  one  rights,  property,  and  franchises,  and  to  grant  them 
to  another,  and  this  is  not  the  exercise  of  legislative  power. 
...  To  justify  the  taking  away  of  vested  rights  there  must 
be  a  forfeiture,  to  adjudge  upon  and  declare  which  is  the 
proper  province  of  the  judiciary;"  that  "attainder  and 
confiscation  are  acts  of  sovereign  power,  not  acts  of  legisla- 
tion ;  "  that  "  the  British  Parliament,  among  other  unlimited 
powers,  claims  that  of  altering  and  vacating  charters,  not 
as  an  act  of  ordinary  legislation,  but  of  uncontrolled  author- 
ity ;  "  that  "  this  omnipotent  sovereign  power  exercised  by 
Parliament  does  not  belong  to  any  Legislature  of  the  United 
State§ ; "  that  "  the  Legislature  of  New  Hampshire  has 
the  same  power  over  this  charter  which  belonged  to  the 
king  who  granted  it.  and  no  more,  and  that  the  king  can 
not  take  away  from  them  any  rights  that  had  been  merely 
subsisting  in  them  under  old  charters  or  prescriptive  uses ;  " 


1/6  The  Legal-Tender  Problem 

that  "  it  can  not  be  pretended  that  the  Legislature,  as  suc- 
cessor to  the  king  in  this  part  of  his  prerogative,  has  any 
power  to  revoke,  vacate,  or  alter  this  charter. 

"  If,  therefore,  the  Legislature  has  not  this  power  by  any 
specific  grant  contained  in  the  Constitution,  nor  as  included 
in  its  ordinary  legislative  powers,  nor  by  reason  of  its  suc- 
cession to  the  prerogatives  of  the  Crown  in  this^particular, 
on  what  ground  would  the  authority  to  pass  those  acts  rest, 
even  if  there  were  no  special  prohibitory  clause  in  the  Con- 
stitution and  the  bill  of  rights  ?  " 

Mr.  Webster  sets  up  a  right  and  power  in  Parliament 
to  alter,  amend,  or  vacate  charters.  He  denies  that  the  Leg- 
islatures succeeded  to  this  power;  and  it  is  evident  that 
Congress  did  not,  for  it  was  not  even  given  the  power  to 
grant  charters  of  incorporation. 

It  appears  from  the  reasoning  of  Mr.  Webster  that  this 
power  of  Parliament  did  not  go  to  the  Legislatures  of  the 
States.  The  logic  of  the  principles  upon  which  the  Consti- 
tution was  framed  is  that  it  did  not  go  to  Congress ;  and 
this  is  borne  out  by  the  action  of  the  Fifty-sixth  Congress 
calling  for  an  amendment  to  the  Constitution  to  confer  said 
power  on  Congress.  The  conviction  is  therefore  forced 
upon  one  that  Mr.  Webster's  implied  argument  that  this 
power  of  Parliament  remained  in  the  charter  of  Dartmouth 
College,  was  judicially  legislated  into  the  law  of  the  country 
under  the  specious  plea  that  "  a  charter  is  a  contract,"  and 
protected  by  that  clause  of  the  Constitution  that  forbids  any 
State  to  pass  a  law  impairing  the  obligations  of  a  contract. 

A  careful  reading  of  the  debates  in  the  Constitutional 
Convention  shows  that  some  of  the  framers  of  that  instru- 
ment knew  the  effect  that  corporate  activity  and  greed  would 
have  upon  the  perpetuity  of  the  form  of  government  they 
were  striving  to  establish,  and  withheld  from  Congress  the 


Dartmouth    College   Case  ^77 

power  to  grant  a  charter  of  incorporation  for  any  purpose, 
fearing  that  it  would  be  abused  ;  and  they  regretted  they 
could  not  exercise  some  control,  as  a  safeguard,  over  the 
unlimited  power  which  the  States  retained  to  grant  charters. 
It  looks  like  the  irony  of  fate  that  this  fear  which  they 
guarded  against  so  well,  and  which  was  from  necessity  left 
to  the  uncertainty  of  the  action  of  the  State  Legislatures, 
should  have  been  turned  into  a  more  formidable  machinery 
for  the  oppression  of  the  people  and  the  overthrow  of  the 
form  of  government,  by  the  judicial  legislation  of  the  Su- 
preme Court  of  the  United  States,  under  the  influence  of 
Chief  Justice  Marshall,  in  his  hatred  of  Thomas  Jefferson 
and  his  amenability  to  the  money  power. 

Mr.  Webster,  having  by  implication  argued  that  this 
power  of  Parliament  to  alter,  amend,  or  vacate  charters 
was  not  possessed  by  the  Legislature  of  New  Hampshire, 
next  addressed  his  argument  to  the  assumption  of  the  Leg- 
islature of  New  Hampshire,  which  was  supported  by  the 
Supreme  Court  of  that  State,  that  it  did  belong  to  the 
Legislature. 

He  claimed  that  the  action  of  the  Legislature  was  in 
violation  of  the  tenth  section  of  the  first  article  of  the  Con- 
stitution of  the  United  States,  "  that  no  State  shall  pass  .  .  . 
a  law  impairing  the  obligation  of  contracts." 

When  he  comes  to  argue  that  a  charter  is  a  contract, 
Mr.  Webster,  in  order  that  he  may  get  the  benefit  of  the 
constitutional  inhibition  upon  the  States,  relies  more  upon 
the  weight  of  his  assertions  than  upon  correctness  of  state- 
ment and  application  of  citations.  He  leads  up  to  the  argu- 
ment WMth  a  perversion  of  an  accepted  condition  of  affairs, 
when  he  says  that  "  the  sober  people  of  America  are  weary 
of  the  fluctuating  policy  which  has  directed  the  puDlic 
councils.  .  .  .  They  have  seen  with  regret,  and  with  indig- 

12 


ly^  The  Legal-Tender  Problem 

nation,"  he  says,  "'  that  sudden  changes  and  legislative  inter- 
ference in  cases  affecting  personal  rights  become  jobs  in 
the  hands  of  enterprising  and  influential  speculators,  and 
snares  to  the  most  industrious  and  less-informed  part  of  the 
community.  .  .  .  They  have  seen,  too,  that  one  legislative 
interference  is  but  a  link  of  a  long  chain  of  repetitions ; 
every  subsequent  interference  being  naturally  produced  by 
the  effects  of  the  preceding." 

All  this  was  feared  by  the  framers  of  the  Constitution, 
is  inherent  in  every  form  of  government,  and  was  one  of 
the  reasons  why  they  refused  to  give  Congress  the  power 
to  grant  charters  of  incorporation  to  aid  in  the  iniquitous 
tendency.  To  exercise  restraint  over  the  Legislatures,  and 
provide  against  such  dishonest  action,  was  one  of  the  most 
serious  problems  before  that  body.  The  problem  was  solved, 
and  solved  well,  by  the  clause  that  no  State  should  pass  a 
law  impairing  the  obligations  of  contracts. 

It  was  never  supposed  that  the  judiciary,  upon  whom 
devolved  the  duty  of  protecting  the  citizens  from  such  impo- 
sitions, would,  at  the  dictation  of  the  money  power,  inflict  a 
far  more  serious  injury  upon  the  people  in  deciding  that  a 
charter  was  a  contract,  and  in  the  sphere  of  its  operations, 
uncontrollable  by  either  the  States  or  Congress.  That  this 
was  done,  because  it  was  necessary  to  protect  an  unconsti- 
tutional bank  from  the  action  of  State  Legislatures,  was  the 
judicial  crime  of  the  century. 

Yet  Mr.  Webster,  in  his  desire  to  secure  this  decision, 
cites  the  following  legal  principles :  "  Upon  a  change  of 
government,  it  may  be  admitted  that  such  exclusive  privi- 
leges attached  to  a  private  corporation  as  are  inconsistent 
with  the  new  government,  may  be  abolished.  .  .  .  But 
that  the  Legislature  can  repeal  statutes  creating  private  cor- 
porations, or  confirming  to  them  property  already  acquired 


Dartmouth   College  Case  i79 

under  faith  of  previous  laws,  and  by  such  repeal  vest  the 
property  of  such  corporations  exclusively  in  the  State,  or 
dispose  of  the  same  to  such  purposes  as  they  please,  without 
the  consent  or  default  of  the  corporation,  we  are  not  pre- 
pared to  admit ;  and  we  think  ourselves  standing  on  the 
principles  of  natural  laws  of  every  free  Government,  upon 
the  spirit  and  titles  of  the  Constitution  of  the  United  States, 
and  upon  the  decisions  of  the  most  respectable  tribunals, 
in  resisting  such  a  doctrine." 

No  one  could  object  to  such  an  enunciation  of  the  law, 
for  it  savors  of  common  honesty,  common  fairness,  and 
common  sense ;  and  the  argument  only  shows  that  it  was  not 
necessary  to  declare  a  charter  a  contract  to  secure  citizens 
against  the  hostile  action  of  the  Legislature,  for  they  had 
full  protection,  under  the  law,  from  such  imposition. 

If  Mr.  Webster  had  been  satisfied  with  that  enunciation, 
no  harm  would  have  been  done ;  but  he  would  not  have  suc- 
ceeded in  getting  around  the  principles  admitted  in  the 
Deveaux  case,  that  a  Legislature  had  a  right  to  tax  a  branch 
of  the  Bank  of  the  United  States  to  raise  funds  to  help  bear 
the  expenses  of  the  State.  To  succeed  in  this  it  was  neces- 
sary to  carry  the  Supreme  Court  to  the  extent  of  holding 
that  a  charter  was  a  contract ;  and  if  the  bank  preserved  its 
existence,  no  thought  was  given  to  the  harm  that  might  be 
brought  upon  the  country  and  the  perpetuity  of  the  form 
of  government. 

In  the  light  of  the  years  that  have  passed,  and  the  expe- 
rience of  the  country  since  under  the  decision,  the  follow- 
ing reflects  no  credit  on  Mr.  Webster  as  a  statesman :  — 

"  Much  has  heretofore  been  said  of  the  necessity  of 
admitting  such  a  power  in  the  Legislature  as  has  been 
assumed  in  this  State.  J\Iany  of  possible  evils  have  been 
imagined,    which    might    otherwise    be    without    remedv. 


i8o  The  Le^al-Tender  Problem 

Abuses,  it  is  contended,  might  arise  in  the  management  of 
such  institutions  which  the  ordinary  courts  of  law  would 
be  unable  to  correct.  But  this  is  only  another  instance  of 
that  habit  of  supposing  extreme  cases,  and  then  of  reasoning 
from  them,  which  is  the  constant  refuge  of  those  who  are 
obliged  to  defend  a  cause  which  upon  its  merits  is  indefen- 
sible. The  apprehension  of  danger  is  groundless,  and  there- 
fore the  whole  argument  falls.  Hitherto,  neither  in  our 
country  or  elsewhere,  have  such  cases  of  necessity  occurred. 
The  judicial  establishments  of  the  States  are  presumed  to 
he  competent  to  prevent  abuses  and  violations  of  trusts,  in 
cases  of  this  kind  as  zvcU  as  in  all  others." 

The  following  description  is  given  by  Mr.  Goodrich  of 
the  close  of  Mr.  Webster's  argument :  — 

"  Sir,  you  may  destroy  this  little  institution ;  it  is  weak ; 
it  is  in  your  hands.  I  know  it  is  one  of  the  lesser  lights  in 
the  literary  horizon  of  our  country.  You  may  put  it  out. 
But  if  you  do  so  you  must  carry  through  your  work.  You 
must  extinguish  one  after  another  all  those  greater  lights 
of  science  which  for  more  than  a  century  have  thrown  their 
radiance  over  our  land.  It  is,  sir,  as  I  have  said,  a  small 
college ;  and  yet  there  are  those  who  love  it.  Here  his  feel- 
ings mastered  him ;  his  eyes  filled  with  tears,  his  lips  quiv- 
ered, his  voice  was  choked.  In  broken  words  of  tenderness 
he  spoke  of  his  attachment  to  the  college,  and  his  tone 
seemed  filled  with  memories  of  home  and  boyhood,  of  early 
affections  and  youthful  privations  and  struggles. 

"  The  courtroom,"  says  Mr.  Goodrich,  "  during  these  two 
or  three  minutes  presented  an  extraordinary  spectacle. 
Chief  Justice  Marshall,  with  his  tall  and  gaunt  figure  bent 
over  as  if  to  catch  the  slightest  whisper,  the  deep  furrows 
of  his  cheeks  expanded  with  emotion,  and  with  eyes  suffused 
with  tears;  Mr.  Justice  Washington  at  his  side,  with  his 


Dtirt month    College   Case  i8i 

small  emaciated  frame,  and  countenance  more  like  marble 
than  I  ever  saw  on  any  human  being,  leaning  forward  with 
eager,  troubled  look ;  and  the  remainder  of  the  court  at  the 
two  extremities  pressing,  as  it  were,  to  a  single  point,  while 
the  audience  below  were  wrapping  themselves  around  in 
closer  folds  beneath  the  bench,  to  catch  each  look  and  every 
movement  of  the  speaker's  face." 

If  this  is  a  correct  description  of  tlje  closing  moments 
of  Mr.  Webster's  argument,  and  its  effect  upon  the  court,  it 
only  shows  the  hypocritical  acting  of  the  speaker,  and  the 
judicial  mummery  of  the  court,  for  it  is  evident  that  the 
interest  of  the  occasion  grew  out  of  its  bearing  upon  the 
Bank  of  the  United  States,  and  not  upon  Dartmouth  Col- 
lege. Whatever  the  decision,  the  college  suffered  nothing 
more  than  a  change  of  officers  and  name. 

The  dramatics  of  the  speaker  were  not  successful  in 
enabling  the  impressionables  on  the  bench  to  secure  a 
majority  ;  and  though  the  case  was  argued  in  March,  1818, 
it' was  not  decided  until  February  2,  1819.  "Justices  INIar- 
shall  and  Washington  were  for  deciding  that  a  charter  was 
a  contract ;  Justice  Story  was  inclined  to  an  opinion  favor- 
able to  the  power  of  the  State  Legislature  to  pass  the  laws, 
but  was  still  open  to  conviction ;  Justices  Johnson  and  Liv- 
ingston were  wholly  undecided;  and  Justices  Ford  and 
Duval  were  against  the  contract  theory."  Thus  the  matter 
stood,  Chief  Justice  Marshall  the  eager  champion  of  the 
theory  that  a  charter  was  a  contract. 

"  The  announcement  was  made  by  the  chief  justice  that 
in  consequence  of  the  disagreement  of  the  judges  no  opin- 
ion could  be  given,  and  the  case  must  be  continued  until  the 
next  term  of  the  court."  This  left  the  matter  open  for  fur- 
ther argument. 

"  The  new  board  had  the  opinion  of  Chief  Justice  Rich- 


i82  The  Legal-Tender  Problem 

ardson,  of  the  Supreme  Court  of  New  Hampshire,  printed 
and  widely  circulated.  In  reply  to  this,  Mr.  Webster  pre- 
pared an  elaborate,  printed  argument,  partly  in  the  nature 
of  a  brief  and  partly  as  a  campaign  document,  which  was 
placed  only  in  the  hands  of  a  part  of  the  judges,  but  was 
carefully  kept  from  those  who  were  known  to  be  opposed 
to  the  theory  that  a  charter  was  a  contract." 

The  outside  argument  of  the  bank  faction  was  the  most 
persuasive.  Even  Chancellor  Kent,  upon  reading  Mr.  Web- 
ster's argument,  admitted  that  it  put  "  a  new  complexion 
on  the  case ;  "  though  he  had  previously  approved  of  the 
opinion  of  the  chief  justice  of  New  Hampshire.  Justices 
Johnson  and  Livingston  asked  Chancellor  Kent  for  his  opin- 
ion, and  for  some  reason  he  saw  proper  to  withdraw  his  ap- 
proval of  the  opinion  of  Judge  Richardson. 

Chief  Justice  Marshall,  in  delivering  the  opinion  of  the 
court,  stated  that  the  points  for  consideration  were :  First, 
Is  this  contract  prohibited  by  the  Constitution  of  the  United 
States?  Second,  Is  it  impaired  by  the  acts  under  which 
defendant  holds? 

He  assumed  that  a  charter  was  a  contract,  and  decided 
the  case  in  that  assumption ;  but  he  realized  that  he  must 
limit  the  meaning  of  the  word  "  contract  "  as  used  in  the 
Constitution  "  to  contracts  respecting  property,"  as  he  stated, 
"  as  distinguished  from  the  meaning  of  the  word  '  contract ' 
in  its  broad  sense  of  comprehending  the  political  relations 
between  the  Government  and  the  citizens ;  "  viz.,  "  offices 
held  in  a  State  for  State  purposes ;  laws  concerning  civil 
institutions,  which  must  change  with  circumstances,  and  be 
modified  by  ordinary  legislation,  which  deeply  concern  the 
public,  and  which,  to  preserve  good  government,  the  public 
judgment  must  control;  and  marriage  contracts.  .  .  .  Taken 
in  the  broad  and  unlimited  sense,  the. clause  would  be  an 


Dartmouth   College  Case  183 

unprofitable  and  vexatious  interference  with  the  internal 
concerns  of  the  State,  and  would  unnecessarily  and  unwisely 
embarrass  its  legislation,  and  render  immutable  those  civil 
institutions  which  are  established  for  purposes  of  internal 
government,  and  which,  to  subserve  those  purposes,  ought 
to  vary  with  varying  circumstances." 

It  is  unaccountable  that  he  could  see  so  clearly  and  ex- 
press so  lucidly  the  danger  of  accepting  the  meaning  of  the 
word  "  contract  "  in  its  broad  sense,  and  ignore  the  equally 
evident  evils  that  would  be  visited  upon  the  country  in  ac- 
cepting the  meaning  of  the  word  in  the  sense  he  gave  it, 
except  upon  the  hypothesis  that  he  was  determined  to  take 
care  of  the  bank  at  any  and  all  hazards. 

The  plea  of  ignorance  of  the  evil  effects  of  the  decision 
which  are  so  sorely  afflicting  the  prosperity  of  the  people, 
can  not  be  presented  in  his  behalf ;  for  Judge  Richardson  in 
his  opinion  called  attention  to  the  possible  evils  that  would 
naturally  flow  from  holding  that  corporations  retained  in 
their  charters  a  sovereignty  uncontrolled  and  uncontrollable 
by  either  the  Legislatures  of  the  State  or  by  Congress,  and 
in  the  argument  these  fears  were  presented  so  forcibly  that 
Mr.  Webster  felt  compelled  to  contemptuously  refer  to  them 
as  imaginary  and  mere  pretense. 

The  only  extenuating  feature  of  the  decision  was  the 
inadvertent  clause  of  Justice  Story  that  "  if  the  Legislatures 
meant  to  claim  such  an  authority  [viz.,  to  alter,  amend,  or 
repeal  charters]  it  must  be  reserved  in  the  grant;  "  and  even 
this  was  left  out  of  the  chief  justice's  opinion. 

The  result  has  been  that  the  only  suggestion  which  was 
of  the  slightest  benefit  was  so  well  hidden  in  the  uninterest- 
ing verbosity  and  tiresome  recitations  of  the  opinion,  that 
the  States  did  not  for  a  long  time  see  the  necessity  for  such 
reservation ;  and  their  territory  is  filled   with   corporations 


184  The  Legal -Tender  Problem 

which  defy  their  power,  and  make  fun  of  the  futile  attempts 
of  their  Legislatures  to  exercise  even  the  power  of  taxation 
over  them,  except  as  they  please  to  submit  to  the  same. 

The  failure  of  the  States  to  reserve  the  right  to  alter, 
amend,  or  repeal,  was  neglected  for  such  a  time  that  the 
courts,  influenced  by  the  decision  in  the  Dartmouth  College 
case,  and  fear  of  corporate  power,  are  judicially  legislating 
from  the  States  such  rights  as  it  was  originally  intended 
should  be  retained  by  the  reservation  clause  in  charters  that 
have  been  granted  in  late  years. 

The  chief  justice's  justification  for  limiting  the  mean- 
ing of  the  word  "  contract  "  to  property  rights  is,  "  that  as 
the  framers  of  the  Constitution  could  never  have  intended 
to  insert  in  that  instrument  a  provision  so  unnecessary,  so 
mischievous,  and  so  repugnant  to  its  general  spirit,  the  term 
contract  must  be  understood  in  its  limited  sense." 

The  wrong  that  has  been  inflicted  by  said  opinion  justifies 
the  statement  that  the  chief  justice  virtually  said,  "  In  my 
determination  to  take  care  of  the  bank  of  the  property- 
rights  faction,  I  will  limit  the  meaning  of  the  word  '  con- 
tract '  to  the  minimum  of  provisions  unnecessary,  mischiev- 
ous, and  repugnant  to  the  general  spirit  of  the  Constitution. 

He  adds  further :  "  It  must  be  understood  as  intended 
to-  guard  against  a  power  of  at  least  doubtful  utility,  the 
abuse  of  which  has  been  extensively  felt ;  and  to  restrain 
the  Legislature  in  future  from  violating  the  right  to  prop- 
erty," meaning  thereby  the  taxation  of  the  Bank  of  the 
United  States ;  for  in  the  case  under  consideration,  it  was 
only  the  supervision  and  control  of  the  eleemosynary  insti- 
tution that  the  legislative  act  affected,  not  the  divesting  or 
altering  in  the  least  of  any  of  its  property  rights." 

"Anterior  to  the  form  of  the  Constitution,"  he  said,  "  the 
course  of  legislation  had  prevailed  in  many,  if  not  all  States, 


Dartmouth   College  Case  i^5 

which  weakened  the  confidence  of  man  in  man,  and  embar- 
rassed all  transactions  between  individuals,  by  dispensing 
with  the  faithful  performance  of  engagements.  To  correct 
this  mischief,  by  restraining  the  power  which  produced  it, 
the  State  Legislatures  were  forbidden  '  to  pass  any  law- 
impairing  the  obligations  of  contracts,'  that  is,  of  contracts 
respecting  property  under  which  some  individual  could  claim 
a  right  to  something  beneficial  to  himself;  and  that  since 
the  clause  in  the  Constitution  must  receive  some  limitation, 
it  may  be  confined,  and  ought  to  be  confined,  to  cases  of 
this  description,  to  cases  within  the  mischief  it  is  intended 
to  remedy." 

It  should  have  been  known  to  Chief  Justice  Marshall 
that  this  power  of  injustice  is  inherent  in  all  forms  of  gov- 
ernment, and  that  its  exercise  is  restricted  only  by  the 
morality  of  a  people  and  a  nation,  as  expressed  in  the  deci- 
sions of  the  judiciary. 

He  should  have  known  also  that  the  most  futile  anti- 
dote for  this  dishonest  tendency  was  chartering  corpora- 
tions, which,  when  freed  from  legislative  control  and  super- 
vision, become  instruments  of  more  formidable  injustice 
than  have  been  exercised  by  any  governing  body  known  to 
history. 

He  should  have  known  that  it  was  the  aggregation  of 
men  of  wealth  by  corporate  enactment,  with  the  license  of 
corporate  irresponsibility,  and  the  power  of  possible  cor- 
porate immensity,  that  inclines  and  enables  them  to  influ- 
ence the  action  of  Legislatures,  Courts,  Congresses,  and 
Presidents  into  committing  the  injustice  complained  of;  and 
that  when  and  wherever  officials  are  free  from  those  malev- 
olent influences,  they  have  never  been  guilty  of  the  prac- 
tises he  was  pretending  that  he  was  warding  off. 

He  knew  that  he  had  at  heart  the  interests,  and  was  in 


i86  The  Legal-Tender  Problem 

feeling  the  friend  and  advocate  of,  the  property-rights  fac- 
tion, bitterly  opposed  to  the  personal-rights  faction  led  by 
Air.  Jefferson,  and  that  the  strength  and  success  of  his 
faction  relied  on  corporate  activity,  free  from  the  control  of 
State  legislation,  and  especially  the  corporate  activity  of 
the  bank,  in  order  to  prevail  over  the  genius  of  J\Ir.  Jefferson. 

No  one  vv^as  more  familiar  than  he  with  the  principles 
evolved  to  protect  the  people  from  the  aggressions  and  impo- 
sitions of  his  faction,  and  the  checks  and  overthrows  received 
from  the  superior  statesmanship  of  Mr.  Jefferson,  who  had 
once  driven  them  from  power,  and  was  influencing  the 
policies  of  the  Government. 

No  one  was  more  familiar  than  he  with  the  treasonable 
conduct  of  his  faction  during  the  war  with  England,  and 
the  manner  in  which  Mr.  Madison  was  induced  to  desert 
Mr.  Jefferson,  and  sign  the  bill  granting  a  charter  to  the 
United  States  Bank. 

No  one  realized  better  than  he  the  deadliness  of  the  blow 
of  the  State  of  Maryland  when  it  placed  its  prohibitive  tax 
upon  the  operation  of  the  bank  in  its  territory ;  and  no  one 
was  more  alive  and  keener  to  the  fact  that  now  all  depended 
on  him  and  his  influence  with  the  members  of  the  court. 

This  influence  prevailed ;  and  after  he  secured  the  major- 
ity of  the  court,  the  opinion  was  announced,  as  it  was 
intended  that  it  should  be,  when  Mr.  Webster  was  directed 
to  change  sides,  if  Chief  Justice  Marshall  could  carry  the 
court  with  him. 

Having  discovered  that  a  charter  was  a  contract,  and 
such  a  contract  as  was  protected  by  the  Constitution  of  the 
United  States,  there  was  nothing  dangerous  to  the  interests 
of  the  bank  in  the  case  of  McCuUough  against  the  State  of 
Maryland,  and  the  hearing  of  that  case  was  had  and  the 
opinion  delivered  March  7,   1819. 


XIX 

McCullough  vs.  the  State  of  Maryland,  4  Whea- 
ton    {S.    C.   Rep.),  313- 

In  the  argument  of  the  case,  Mr.  Webster  developed  the 
main  point  in  the  following  adroit  manner:  "The  question 
whether  Congress  constitutionally  possesses  the  powder  to 
incorporate  a  bank,  might  be  raised  upon  the  record,  and 
it  was  in  the  discretion  of  the  defendant's  counsel  to  agitate 
it;  .  .  .  but  it  might  have  been  hoped  that  it  was  not  now 
to  be  considered  as  an  open  question.  It  is  a  question  of 
the  utmost  magnitude,  deeply  interesting  to  the  Government 
itself,  as  well  as  to  individuals.  The  mere  discussion  of  such 
a  question  may  most  essentially  afifect  the  value  of  a  vast 
amount  of  private  property. 

"  We  are  bound  to  suppose  that  the  defendant  in  error 
is  well  aware  of  these  consequences,  and  would  not  have 
intimated  an  intention  to  agitate  such  a  question,  but  with 
the  real  design  to  make  it  a  topic  of  serious  discussion,  and 
with  the  view  of  demanding  upon  it  the  solemn  judgment 
of  this  court.  This  question  arose  early  after  the  adoption 
of  the  Constitution,  and  was  discussed  and  settled,  as  far 
as  legislative  discretion  could  settle  it,  in  the  First  Congress." 

Mr.  Webster  knew  when  he  made  this  statement  that 
the  action  of  the  First  Congress  was  caused  by  restricting 
the  money  of  the  country  to  gold  and  silver,  and  that  the 
distress  caused  by  the  scarcity  of  money  was  such  that  it 
was  imperative  for  Congress  to  take  some  action  to  tem- 
porarily relieve  this  suffering. 

187 


i88  The  Le^al-Tender  Problem 

Mr.  Webster  further  knew  that  a  certain  chque  that  con- 
trolled Congress  took  advantage  of  this  necessity  for  addi- 
tional currency,  and  influenced  that  body  to  grant  them  a 
charter  for  a  bank,  by  means  of  which  they  could  and  had 
robbed  the  people. 

Mr,  Webster  also  knew  that  this  clique  was  so  afraid 
that  Congress  would  confer  a  similar  favor  upon  others, 
that  they  influenced  that  body  to  make  the  pledge  that  no 
other  charter  would  be  granted  for  twenty  years. 

Mr.  Webster  also  knew  that  the  selfishness  of  the  bank 
clique  had  in  great  part  destroyed  their  calculation,  because 
the  distress  of  the  people,  even  after  the  bank  was  in  oper- 
ation, became  so  grievous  that  the  States  were  forced  to 
come  to  their  relief  by  the  unconstitutional  act  authorizing 
the  bank  chartered  by  them  to  issue  notes. 

He  knew  that  the  exercise  of  these  two  unconstitutional 
powers,  first  by  Congress  and  then  by  the  States,  had  de- 
veloped two  hostile  factions,  which  had  been  struggling  for 
the  control  of  the  Government. 

He  knew  that  the  national-bank  clique  was  overthrown 
in  1811,  and  that  the  State-bank  faction  was  overthrown  in 
181 7,  and  that  this  effort  of  the  State-bank  faction  would 
prove  fatal  to  the  national  bank,  unless  the  court  held  that 
Congress  had  the  power  to  grant  a  charter  to  a  bank.  There- 
fore he  opened  the  argument  as  he  did,  claiming  that  acts 
(which  arose  out  of  the  distress  that  had  been  imposed  by 
the  limitations  and  restrictions  of  the  Constitution)  were 
precedents  so  numerous,  so  long,  and  so  generally  acquiesced 
in  that  they  were  now  constitutional. 

He  adds  "  that  arguments  drawn  from  the  Constitution 
in  favor  of  this  power  were  stated,  and  exhausted  in  that 
discussion."  Perhaps  so,  but  the  arguments  drawn  from 
the  motives,  the  facts,  and  IMachiavellism  which  caused  the 


McCullough  vs.  State  of  Maryland        189 

abuse  of  the  Constitution,  have  not  been  stated,  much  less 
exhausted. 

He  adds,  "  They  were  exhibited  with  characteristic  per- 
spicuity and  force  by  the  first  secretary  of  the  treasury  in 
his  report  to  the  president  of  the  United  States ;  "  and  it 
may  be  added  that  similar  violations  of  the  Constitution,  in 
the  interests  of  the  national-bank  clique,  have  received  the 
advocacy  of  their  agents  while  attitudinizing  in  the  office  of 
the  secretary  of  the  treasury  as  servants  of  the  public. 

He  states  "  that  the  First  Congress  created  and  incor- 
porated the  bank,  and  that  nearly  each  succeeding  Congress, 
if  not  every  one,  has  acted  and  legislated  on  the  presumption 
of  the  legal  existence  of  such  a  power  in  the  Government." 
He  made  this  statement  when  he  knew  the  pledge  given  by 
the  First  Congress  that  it  should  have  a  monopoly  for 
twenty  years,  had  carried  it  safely  through  the  succeeding 
nine  Congresses,  and  that  the  Eleventh,  the  first  one  that 
was  free  from  the  moral  obligation,  refused  to  exercise  said 
power. 

He  knew  that  the  Eleventh  Congress  refused  the  bank 
the  renewal  of  its  charter,  and  that  Mr,  Madison  vetoed 
the  bill  granting  a  charter  to  a  bank  in  1816,  and  approved 
the  bill  in  1817,  and  yet  he  makes  the  following  statements: 
"  Individuals,  it  is  true,  have  doubted,  or  thought  otherwise ; 
but  it  can  not  be  shown  that  either  branch  of  the  Legis- 
lature has  at  any  time  expressed  an  opinion  against  existence 
of  the  power.  The  executive  government  has  acted  upon  it 
[and  he  might  have  added  both  ways],  and  the  courts 
below  have  acted  upon  it.  ]\lany  of  those  who  doubted  or 
denied  the  existence  of  the  power,  when  first  attempted  to 
be  exercised,  have  yielded  to  the  first  decision,  and  acqui- 
esced in  it  as  a  settled  precedent. 

**  When  all  the  branches  of  the  Government  have  thus 


I90  The  Legal-Tender  Problem 

been  acting  on  the  existence  of  this  power  for  nearly  thirty 
years,,  it  would  seem  almost  too  late  to  call  it  in  question, 
unless  its  repugnancy  with  the  Constitution  were  plain  and 
manifest.  Congress  by  the  Constitution  is  invested  with 
certain  powers  ;  and  as  to  these  objects,  and  within  the  scope 
of  these  powers,  it  is  sovereign." 

This  last  clause  is  a  true  and  well-stated  proposition, 
and  if  Mr.  Webster,  as  a  statesman  and  not  as  the  paid 
advocate,  had  been  honestly  seeking  the  true  construction 
of  the  Constitution,  considering  only  the  present  and  future 
welfare  of  the  people,  and  the  perpetuity  of  the  best  form 
of  government  ever  given  to  man,  he  would  have  ascertained 
what  our  Supreme  Court  has  three  times  enunciated,  and 
maintains  to-day;  viz.,  that  the  only  sovereign  power  Con- 
gress has  in  reference  to  the  circulating  currency  is  the 
issue  of  legal-tender  treasury  notes  (as  well  as  the  coinage  of 
specie),  that  are  no  more  redeemable  in  gold  or  silver  coin 
than  the  coins  are  redeemable  in  treasury  notes. 

Mr.  Webster  was  too  good,  a  statesman  to  go  on  record 
that  Congress  was  exercising  a  sovereign  power  when  it 
granted  a  charter  to  a  bank,  for  in  his  argument  he  says, 
"Corporations  are  the  means;  they  are  not  the  objects  of 
Government.  No  Government  exists  for  the  purpose  of 
creating  corporations  as  one  of  the  ends  of  its  being.  They 
are  institutions  established  to  afifect  certain  beneficial  pur- 
poses, and,  as  means,  take  their  characters  generally  from 
their  end  and  object." 

Air.  Webster's  argument  makes  it  possible  to  state  the 
issue  so  clearly  that  any  one  may  understand  it,  and  no 
longer  be  mystified  and  confounded  by  the  metaphysical, 
literary,  and  governmental  distinctions  of  words,  phrases, 
and  powers  that  have  been  palmed  off  as  luminous  exposi- 
tions of  the  Constitution. 


McCullough  vs.  State  of  Maryland        191 

Congress,  under  the  teaching  and  influence  of  Mr.  Jeffer- 
son and  the  stress  of  the  war  with  England,  exercised  the 
sovereign  power  of  a  nation  in  the  bill  authorizing  the  issue 
of  treasury  notes,  non-interest-bearing,  non-redeemable 
except  in  exchange  for  bonds,  and  legal  tender  for  all  debts 
and  dues  to  the  United  States. 

President  Madison  in  1816  vetoed  a  bill  to  grant  a 
charter  to  a  bank  that  was  intended  to  nullify  the  provisions 
and  the  benefits  of  that  act.  h'or  some  unexplained  reason, 
in  18 17  he  reversed  himself,  and  approved  the  bill  granting 
a  charter  to  a  bank. 

By  the  terms  of  this  bill  the  bank  was  given  a  monopoly 
for  twenty  years,  with  the  right  to  issue  notes.  In  addition 
the  bill  provided  that  the  bank  was  to  pay  the  Government 
$1,500,000  for  this  exercise  of  its  sovereign  power;  and  the 
Government  was  obligated  to  get  its  treasury  notes  out  of 
circulation,  so  that  they  would  not  compete  with  the  notes 
of  the  bank. 

The  people  were  so  well  pleased  with  the  efficiency  of 
the  treasury  notes  that  they  refused  to  exchange  them  for 
bonds,  notwithstanding  they  were  refused  by  the  banks,  and 
notwithstanding  the  Government  refused  to  receive  them  in 
payment  of  import  duties. 

The  people,  dirough  their  State  Governments,  were  re- 
senting the  debauchery  of  their  president  and  Congress. 
The  State  of  Maryland  instituted  the  fight,  and  most  effi- 
ciently, by  a  prohibitive  tax  upon  the  branch  of  the  bank 
established  in  that  State.  The  Supreme  Court  of  that  State 
sustained  the  action  of  the  Legislature,  and  with  annihila- 
tion staring  the  bank  in  the  face,  it  appealed  to  the  Supreme 
Court  of  the  United  States  for  protection. 

The  Dartmouth  College  case  was  utilized  to  have  the 
Supreme  Court  decide  that  a  charter  was  a  contract ;  so  that 


192  The  Legal-Tender  Problem 

when  it  was  decided  that  Congress  had  the  power  to  charter 
a  bank,  the  principles  settled  in  that  case  would  be  decisive 
of  the  right  of  the  States  to  tax  the  bank,  with  a  view  to 
its  destruction. 

INIr.  Webster  had  won  one  branch  of  the  fight,  and  he 
must  exert  to  the  full  the  greatness  of  his  intellect  and  in- 
genuity to  furnish  arguments  that  would  do  as  a  pretext 
for  deciding  that  Congress  could,  for  a  pittance  of  $1,500,- 
000,  barter  away  to  a  bank  the  exercise  of  a  sovereign  power 
for  twenty  years.  Therefore  Mr.  Webster,  after  establish- 
ing the  proposition  that  Congress  by  the  Constitution  is 
vested  with  certain  powers,  and  as  to  the  objects  and  within 
the  scope  of  these  powers  it  is  sovereign,  refused  to  see 
what  the  necessity  of  events,  the  true  theory  of  government, 
and  the  inexorable  logic  of  financial  science,  has  since  caused 
the  Supreme  Court  to  announce  as  the  law  of  the  land ; 
viz.,  the  power  and  right  of  Congress  to  issue  treasury  notes 
redeemable  only  in  the  sense  that  they  are  receivable  for 
all  debts,  dues,  and  obligations  of  the  Government,  and  a 
legal  tender  for  the  payment  of  private  debts. 

If  this  expression  of  the  true  theory  of  the  issuance  of 
money  had  been  accepted  by  Mr.  Webster,  he  need  not  have 
gone  off  hunting  for  the  implied  power  which  he  and  Chief 
Justice  Marshall  made  so  much  of  in  their  desire  to  save 
the  machinery  of  the  property-rights  faction,  and  which 
has  been  so  instrumental  in  enabling  that  faction  to  transfer 
the  property  of  the  people  into  their  possession. 

He  knew  that  the  doctrine  of  implied  power  did  not,  and 
could  not,  arise,  if  there  was  a  constitutional  or  a  sovereign 
power  to  accomplish  the  same  end.  Therefore  he,  and  his 
faction,  contended  that  Congress  had  no  right  to  issue 
treasury  notes,  because  the  power  had  been  withheld  from 
Congress ;  and  as  said  power  had  been  designedly  withheld, 


McCullough  vs.  State  of  Maryland        193 

they  had  the  right  to  assume  that  there  was  no  way  to  do 
what  was  necessary  to  be  done,  and  sustain  what  had  been 
done,  except  to  invoke  the  doctrine  of  imphed  power  as  a 
means  to  an  end  under  the  general  welfare  clause. 

The  argument  used  to  induce  the  Supreme  Court  to  deny 
the  right  of  Congress  to  exercise  this  sovereign  power,  was 
reversed  in  the  effort  to  induce  the  court  to  sustain  the 
action  of  Congress  that  granted  a  charter  to  the  bank,  and 
sold  the  sovereign  power  to  the  bank.  The  grant  of  a 
charter  to  a  bank  was  not  an  implied  or  sovereign  power, 
as  will  appear  from  the  following  portion  of  Mr.  Webster's 
argument :  — 

"  Even  without  the  aid  of  the  general  clause  in  the  Con- 
stitution empowering  Congress  to  pass  all  necessary  and 
proper  laws  for  carrying  its  powers  into  execution,  the 
grant  of  powers  itself  necessarily  implies  the  grant  of  all 
usual  and  suitable  means  for  the  execution  of  the  powers 
granted.  Congress  may  declare  war ;  it  may  consequently 
carry  on  war,  by  armies  and  navies,  and  other  suitable 
means  and  methods  of  warfare.  .  .  . 

"  It  may  of  course  use  all  proper  and  suitable  means, 
not  specially  prohibited  in  the  raising  and  disbursement  of 
the  revenue.  ...  It  is  not  enough  to  say  that  it  does  not 
appear  that  a  bank  was  in  the  contemplation  of  the  framers 
of  the  Constitution." 

And  it  seems  that  it  made  no  difference  to  Mr.  Madison 
and  others  then  in  office,  who  were  in  the  Constitutional 
Convention,  that  a  fear  that  Congress  would  create  a  bank 
was  the  expressed  reason  why  the  power  to  grant  charters 
was  withheld  from  Congress.  Mr.  Webster  must  have 
known  this  when  he  made  these  statements,  though  it  is 
admitted  that  the  report  of  the  proceedings  of  the  Conven- 
tion had  not  been  made  public  at  that  time.     It  is  hardly 

13 


194  The  Legal-Tender  Problem 

possible,  in  the  consultations  before  the  argument,  that  he 
was  not  fully  informed  of  what  was  said  in  the  Conven- 
tion, if  not  furnished  with  a  copy  of  so  much  of  the  debate 
as  was  preserved. 

Mr.  Webster,  in  accounting  for  the  fact  in  his  statement 
"  that  it  does  not  appear  that  a  bank  was  in  the  contempla- 
tion of  the  framers  of  the  Constitution,"  says,  "  It  was  not 
their  intention,  in  these  cases,  to  enumerate  particulars." 
Negatively  they  had  enumerated  the  bank,  and  been  most 
particular  in  withholding  the  power  from  Congress  to  grant 
charters  for  building  canals,  because  of  the  well-entertained 
fear  that  it  would  be  abused  by  the  creation  of  a  bank. 

Mr.  Webster  adds  further :  "  The  true  view  of  the  sub- 
ject is  that  if  it  be  a  fit  instrument  to  an  authorized  purpose, 
it  may  be  used,  not  being  specially  prohibited." 

It  was  a  vicious  play  upon  words  and  hypocritical  legal 
juggling  to  argue  that  a  power  which  the  wisdom  of  the 
Fathers  on  three  occasions  refused  to  bestow  upon  Congress, 
was  a  power  that  could  be  implied  because  it  was  "  not  spe- 
cially prohibited  "  in  the  language  of  the  Constitution. 

Judged  by  the  other  test  laid  down  by  Mr.  Webster, 
"that  if  it  be  a  fit  instrument  to  an  authorized  purpose,  it 
may  be  used,"  the  creation  of  a  bank  was  unconstitutional 
and  an  imposition.  The  authorized  purpose  should  only 
have  been  to  furnish  the  people  with  a  full  supply  of  cir- 
culating currency  with  which  they  could  transact  business, 
and  secure  their  merited  prosperity. 

It  should  have  been  evident  to  any  one  but  paid  advo- 
cates, partisan  judges,  and  interested  parties,  that  forcing 
a  people  to  give  up  efficient  and  satisfactory  treasury  notes 
that  they  would  not  exchange  for  seven-per-cent  bonds,  and 
substituting  in  their  stead  bank-notes  upon  which  they  were 
forced  to  pay  interest  at  the  rate  of  twenty  or  a  higher  per 


McCullougli  vs.  State  of  Maryland        i95 

cent  for  every  dollar  of  specie  invested,  was  not  in  con- 
sideration of  the  interests  of  the  people,  but  solely  in  the 
interest  of  the  bankers.  Mr.  Webster  spoke  only  in  the 
interest  of  his  client,  the  bank. 

The  fitness  of  the  bank,  as  an  instrument  to  subserve  the 
purpose  of  the  bankers,  had  been  twice  demonstrated  in  the 
history  of  the  country:  first,  in  the  methods,  practises,  and 
accumulated  wealth  of  the  stockholders  of  the  bank  char- 
tered by  the  Continental  Congress;  and,  second,  by  the 
methods,  practises,  and  success  of  the  stockholders  of  the 
first  bank  chartered  by  Congress. 

Its  authorized  purpose, —  to  enrich  the  privileged  few 
at  the  expense  of  the  many,— and  its  total  unfitness  to 
subserve  the  interests  of  the  people,  was  equally  well  known, 
and  therefore  the  Government  was  taken  into  copartnership 
and  given  a  share  of  the  profits  that  were  being  made  ofif  of 
its  citizens  and  supporters. 

Mr.  Webster's  argument  betrays  that  in  the  close  exam- 
ination he  gave  the  question  he  was  forced  to  the  conclusion 
that  Congress  had  the  sovereign  power  to  issue  treasury 
notes,  as  had  been  done,  and  that  its  action  in  "selling  the 
exercise  of  that  power  to  the  bank,  and  calling  in  the  treas- 
ury notes  was  vicious  in  motive  and  wrong  in  the  correct 
theory  of  government ;  but  inasmuch  as  it  had  been  done, 
and  retracing  its  steps  could  not,  under  the  circumstances, 
be  safely  attempted,  or  he  was  not  willing  under  his  party 
obligations  and  personal  ambitions  that  it  should  be  done, 
the  bank  might  be  a  necessary  but  not  a  proper  instrument. 
Therefore  he  contended  that  "  proper,"  as  used  in  the  Con- 
stitution, only  meant  "  necessary ;  "  for  in  the  next  sentence 
he  adds,  "  If  this  be  not  so,  and  if  Congress  could  use  no 
means  but  such  as  were  absolutely  indispensable  to  the 
existence  of  granted  powers,  the  Government  would  hardly 


196  The  Legal-Tender  Problem 

exist ;  at  least  it  would  be  wholly  inadequate  to  the  purposes 
of  its  formation.  A  bank  is  a  proper  and  suitable  instru- 
ment to  assist  the  operations  of  the  Government  in  the  col- 
lection and  disbursements  of  the  revenue,  in  the  occasional 
anticipations  of  taxes  and  imports,  and  the  regulation  of 
the  actual  currency  as  being  a  part  of  the  trade  and  exchange 
between  the  States.  It  is  not  for  this  court  to  decide  whether 
a  bank,  or  a  bank  such  as  this,  be  the  best  possible  means 
to  aid  these  purposes  of  the  Government.  Such  topics 
must  be  left  to  that  discussion  which  belongs  to  them  in 
the  two  houses  of  Congress.  Here  the  only  question  is 
whether  a  bank,  in  its  known  and  ordinary  operations,  is 
capable  of  being  so  connected  with  the  finances  and  rev- 
enues of  the  Government  as  to  be  fairly  within  the  discretion 
of  Congress,  when  selecting  means  and  instruments  to  exe- 
cute its  powers  and  perform  its  duties." 

Mr.  Webster  knew  that  he  was  making  a  misstatement 
in  saying  that  "  the  only  question  is  whether  a  bank,  in  its 
known  and  ordinary  operations,  is  capable  of  being  so  con- 
nected with  the  finances  and  revenues  of  the  Government 
as  to  be  fairly  within  the  discretion  of  Congress,"  etc.,  with 
a  view  to  mislead  the  court ;  for  the  main  question  was,  as 
appears  from  the  record,  whether  Congress  had  the  power 
to  create  a  bank. 

It  is  evident  to  the  most  superficial  observation  that  if 
Congress  did  not  have  the  power  to  grant  a  charter  of 
incorporation,  a  bank  chartered  by  Congress,  however  neces- 
sary and  efficient,  would  not  have  been  constitutional.  If 
Mr.  Webster  had  put  his  argument  for  the  right  and  power 
of  Congress  to  grant  charters  upon  the  necessity  and  fitness 
of  the  bank,  as  the  sole  instrument  for  the  preservation  of 
the  country,  he  would  have  gone  to  record  as  indirectly 
denying  the  power  of  Congress  to  use  any  other  means  than 


McCullougli  vs.  State  of  Maryland        i97 

a  bank.  This  he  was  not  willing  to  do.  His  intellectual 
honesty  was  superior  to  his  personal  integrity,  and  he  asserts 
and  maintains  the  one  while  ignoring  the  other. 

Conscious  that  Congress,  in  the  act  authorizing  the  issue 
of  treasury  notes,  had  only  exercised  an  inherent  and  natural 
sovereign  power,  and  that  the  sale  of  the  exercise  of  this 
power  to  the  bank  was  vicious  in  its  effects,  but  advan- 
tageous to  his  clients,  and  therefore  essential  and  necessary 
to  their  interests,  he  made  this  statement :  "  Congress  has 
duties  to  perform  and  powers  to  execute.  It  has  a  right  to 
the  means  by  which  these  duties  can  be  properly  performed 
and  the  powers  executed.  Among  other  means,  it  has  estab- 
lished a  bank ;  and  before  the  act  establishing  it  can  be  pro- 
nounced unconstitutional  or  void,  it  must  be  shown  that  a 
bank  has  no  fair  connection  with  the  execution  of  any  power 
or  duty  to  the  national  Government,  and  that  its  creation  is 
consequently  a  manifest  usurpation." 

However  it  may  have  been  at  that  time,  when  the  Govern- 
ment was  a  co-partner  in  the  bank,  and  dependent  upon  its 
working,  it  is  now  evident  that  a  bank  has  no  fair  connection 
with  the  execution  of  any  power  or  duty  of  the  national  Gov- 
ernment. 

The  second  question  for  decision,  as  stated  by  Air.  Web- 
ster, was  "whether,  if  the  bank  be  constitutionally  created, 
the  State -Governments  had  power  to  tax  it?"  "The  only 
inquiry,  therefore,  in  this  case  is,"  he  stated,  "  whether  the 
law  of  the  State  of  Maryland  imposing  this  tax  be  consistent 
with  the  free  operation  of  the  law  establishing  the  bank, — 
which  is  the  supreme  law  of  the  land, —  and  the  full  enjoy- 
ment of  the  privileges  conferred  bv  it." 

Eliminated  of  the  interest  that  the  Government  has  in  the 
bank, —  which  was  inserted  in  the  act  for  the  double  pur- 
pose of  securing  the  protection  of  the  Government  and  the 


198  The  Le^al-Tender  Problem 

profits  that  might  be  made  out  of  its  deposits, —  it  is  evident 
"that  the  full  enjoyment  of  the  privileges  conferred  by  it" 
could  only  apply  to  the  clique  who  influenced  Congress  to 
pass  and  the  president  to  approve  the  bill. 

Mr.  Webster  further  stated:  "The  object  in  laying  this 
tax  may  have  been  revenue  to  the  State.  In  the  next  case, 
the  object  may  be  to  expel  the  bank  from  the  State ;  but  how 
is  this  object  to  be  ascertained,  or  who  is  to  judge  of  the 
motives  of  legislative  acts.  .  .  .  The  Government  of  the 
United  States  has  itself  a  great  pecuniary  interest  in  this 
corporation.  .  .  .  Can  the  State  tax  this  property?  .  .  .  The 
State  of  ^Maryland  might,  with  as  much  propriety,  tax  treas- 
urv  notes." 

It  is  evident  from  the  last  observation  that  Mr.  Webster 
was  fully  aware  of  the  governmental  abuse  which  Congress 
committed  when  it  sold  its  sovereign  power  to  the  bank  to 
issue  notes,  and  endeavored  to  force  its  notes  out  of  circula- 
tion so  that  the  bank-notes  could  be  issued  in  their  stead.  It 
was  absurd,  if  not  treasonable,  to  argue  that  Congress  has 
the  constitutional  right  to  ignore  and  set  aside  an  essential 
and  recognized  sovereign  power  in  order  that  it  might  exer- 
cise, in  behalf  of  a  national  bank,  a  doubtful  if  not  clearly 
unconstitutional  power. 

Mr.  Webster  further  argued  that  "  the  bank  can  not  exist, 
nor  can  any  bank  established  by  Congress  exist,  if  this  right 
to  tax  exists  in  State  Governments.  .  .  .  One  or  the  other 
must  be  surrendered,  and  a  surrender  on  the  part  of  the  Gov- 
ernment of  the  United  States  would  be  a  giving  up  of  those 
fundamental  and  essential  powers,  without  which  the  Govern- 
ment can  not  be  maintained." 

Here  we  have  Mr.  Webster  contending,  between  the 
right  of  the  States  to  exist  by  the  exercise  of  constitutional 
power  and  the  right  of  the  bank  to  exist  by  the  exercise  of 


McCullough  vs.  State  of  Maryland        i99 

unconstitutional  power,  that  the  States  must  give  way,  and 
upon  the  false  assumption  that  Congress  would  be  giving  up 
a  fundamental  and  essential  power,  if  it  could  not  preserve  its 
bank. 

It  is  one  of  the  anomalies  of  our  judicial  and  congres- 
sional history  that  such  zeal  has  been  shown  in  behalf  of  the 
power  of  Congress  to  charter  a  bank,  when  it  had  no  such 
power,  and  so  much  indifiference  shown  as  to  the  right  of 
Congress  to  exercise  the  truly  fundamental  and  essential 
power  to  issue  treasury  notes. 

Mr.  Webster  admitted  that  the  chartering  of  a  bank  by 
Congress  was  not  the  exercise  of  a  fundamental  and  essential 
power  in  the  following :  — 

"A  bank  may  not  be,  and  is  not,  absolutely  essential  to 
the  existence  and  preservation  of  the  Government.  The 
question,"  as  he  was  forced  to  state,  "  is  not  whether  a  bank 
be  useful  or  necessary,  but  whether  Congress  may  not  con- 
stitutionally judge  of  that  necessity  or  utility;  and  whether, 
having  so  judged  and  decided,  and  having  adopted  measures 
to  carry  its  decisions  into  effect,  the  State  Government  may 
interfere  with  its  decisions,  and  defeat  the  operation  of  its 
measures." 

Chief  Justice  Alarshall,  in  his  opinion,  stated  "  that  the 
first  question  made  in  the  cause  is.  Has  Congress  power  to 
incorporate  a  bank?"  and -not,  as  :\lr.  Webster  contended, 
"  whether  a  bank,  in  its  known  and  ordinary  operation,  is 
capable  of  being  so  connected  with  the  finances  and  revenues 
of  the  Government  as  to  be  fairly  within  the  discretion  of 
Congress,  when  selecting  means  and  instruments  to  execute 
its  powers  and  perform  its  duties." 

In  the  light  of  what  has  been  written,  setting  forth  the 
motives  and  avaricious  influences  that  forced  upon  the  coun- 
try the  abuses  made  necessary  by  the  unpatriotic  and  selfish 


200  The  Legal-Tender  Problem 

limitations  of  the  Constitution  in  the  matter  of  money,  Mr. 
Marshall  begins  his  opinion  with  a  statement  that  begs  the 
question :  — 

"  It  has  been  truly  said  that  this  can  not  be  considered 
as  an  open  question,  entirely  imprejudiced  by  former  pro- 
ceedings of  the  nation  respecting  it.  .  .  .  The  principle  now 
contested  was  introduced  at  a  very  early  period  of  our  his- 
tory, has  been  recognized  by  many  successive  Legislatures, 
and  has  been  acted  upon  by  the  judicial  department,  in  cases 
of  peculiar  delicacy,  as  a  law  of  undoubted  obligation. 

"  It  zvill  not  be  denied  that  a  hold  and  daring  usurpa- 
tion might  he  resisted  after  an  acquiescence  still  longer  and 
more  complete  than  this. 

"An  exposition  of  the  Constitution,  deliberately  estab- 
lished by  legislative  acts,  on  the  faith  of  which  an  immense 
property  has  been  advanced,  ought  not  to  be  lightly  disre- 
garded. 

"  The  power  now  contested  was  exercised  by  the  first 
Congress  elected  under  the  present  Constitution.  .  .  .  The 
bill  for  incorporating  the  Bank  of  the  United  States  did  not 
steal  upon  an  unsuspecting  Legislature  and  pass  unobserved. 
...  Its  principle  was  completely  understood,  and  was  op- 
posed with  equal  zeal  and  ability.  .  .  .  After  being  resisted 
first  in  the  fair  and  open  field  of  debate,  and  afterward  in  the 
executive  cabinet,  with  as  much  persevering  talent  as  any 
measure  has  ever  experienced,  and  being  supported  by  argu- 
ments which  convinced  minds  as  pure  and  as  intelligent  as 
this  country  can  boast,  it  became  a  law.  .  .  .  The  original 
act  was  permitted  to  expire." 

He  omits  to  add  that  under  the  influence  of  Mr.  Jefiferson 
the  bank  was  refused  a  renewal  of  its  charter,  that  the  war 
of  England  was  fought  with  treasury  notes  against  the  treas- 
onable opposition  of  this  banking  clique,  and  that  its  second 


McCullough  vs.  State  of  Maryland       201 

charter  was  secured  in  18 17  through  the  treachery  of  Presi- 
dent Madison  ;  but  instead,  stated  that  "  a  short  experience 
of  the  embarrassments,  to  which  the  refusal  to  revive  it 
exposed  the  Government,  convinced  those  who  were  most 
prejudiced  against  the  measure  of  its  necessity,  and  induced 
the  passage  of  tlic  present  law.  ...  It  would  require  no 
ordinary  share  of  intrepidity  to  assert  that  a  measure  adopted 
under  these  circumstances  was  a  bold  and  plain  usurpation, 
to  which  the  Constitution  gave  no  countenance." 

It  was  well  known  to  Mr.  Marshall,  when  he  penned  the 
above,  that  the  embarrassments  he  referred  to  were  caused 
by  the  treasonable  warfare  against  the  State  banks  and  the 
treasury  notes.  And  he  also  knew  that  the  very  act  of  Con- 
gress he  was  sustaining  had.  for  the  consideration  of  $1,500,- 
000,  sold  to  the  bank  the  right  and  power  to  issue  notes, 
upon  the  agreement  that  it  would  retire  its  treasury  notes 
that  were  being  so  efficiently  and  satisfactorily  used  as 
mediums  of  payment.  It  did  require  no  ordinary  share  of 
judicial  intrepidity  to  gloss  over  in  such  a  manner  these 
well-known  facts,  in  his  intention  to  take  care  of  the 
bank. 

When  one  recalls  all  the  motives  that  dominated  the 
legislation  of  Congress,  the  further  purposes  then  in  view, 
and  reads  such  insincere  and  prejudiced  statements  in  the 
opening  of  the  opinion,  he  knows  there  could  have  been 
no  doubt  in  the  mind  of  the  most  disinterested  hearer  what 
the  decision  would  be ;  and  it  occasioned  no  surprise  that 
Chief  Justice  Marshall  found  reasons  sufficient  to  himself 
for  holding  that  Congress  had  the  power  to  incorporate  a 
bank.  Reasons  would  have  been  found  even  if  there  had 
been  no  ground  for  the  pretexts  advanced ;  for  in  the  follow- 
ing clause  he  adds,  "  These  observations  belong  to  the  cause  ; 
but  thev  arc  not  made  under  the  impression  that,  were  the 


202  The  Le^al-Tender  Problem 

questions  entirely  new,  the  law  would  be  found  irreconcilable 
with  the  Constitution." 

He  thereupon  lays  down  the  accepted  principle  that  "  the 
Government  of  the  United  States,  though  limited  in  its 
powers,  is  supreme ;  and  its  laws,  when  made  in  pursuance 
of  the  Constitution,  form  the  supreme  law  of  the  land,  any- 
thing in  the  constitution  or  laws  of  any  State  to  the  contrary 
notwithstanding."  This  principle,  if  honestly  and  logically 
sustained  in  accordance  with  the  facts,  would  have  forced 
the  conclusion  that  the  act  of  Congress  was  not  constitu- 
tional, for  it  has  been  shown  by  the  records  that  three  differ- 
ent attempts  to  confer  this  power  on  Congress  were  defeated, 
and  solely  because  of  the  fear  that  it  would  be  abused  by 
chartering  a  bank.  Ignoring  and  suppressing  these  facts, 
Mr.    Marshall   proceeds   as   follows :  — 

"Among  the  enumerated  powers  we  do  not  find  that  of 
establishing  a  bank,  or  creating  a  corporation.  .  .  .  But 
there  is  no  phrase  in  the  instrument  which,  like  the  Articles 
of  Confederation,  excludes  incidental  or  implied  powers,  and 
which  requires  that  everything  granted  shall  be  expressly 
and  minutely  described.  .  .  .  Even  the  tenth  amendment, 
which  was  framed  for  the  purpose  of  quieting  the  excessive 
jealousies  which  had  been  excited,  omits  the  word  '  ex- 
pressly,' and  declares  only  that  the  powers  '  not  delegated 
to  the  United  States  nor  prohibited  to  the  States,  are  reserved 
to  the  States,  or  to  the  people ; '  thus  leaving  the  question 
whether  the  particular  power  which  may  become  the  subject 
of  contest  has  been  delegated  to  the  one  Government  or  pro- 
hibited to  the  other,  to  depend  on  a  fair  construction  of  the 
whole  instrument." 

He  used  the  word  "  fair  "  when  he  knew  it  had  been 
asserted  in  the  debates  of  the  Constitutional  Convention 
that  the  States  had  the  right  to  grant  charters  of  incorpora- 


McCullough  vs.  State  of  Maryland       203 

tion,  and  would  not  surrender  it.  and  lliat  it  was  dangerous 
to  give  the  power  to  Congress,  inasniueh  as  no  one  could 
predict  what  use  would  be  made  of  said  power  by  the  States, 
over  whose  action  there  was  no  right  of  authority  in  the 
Government. 

In  the  teeth  of  such  facts,  which  Mr.  Chief  Justice  Mar- 
shall must  have  known,  it  is  strange  that  he  should  assert 
that  "  whether  the  particular  power  which  may  become  the 
subject  of  contest  has  been  delegated  to  the  one  Government 
or  prohibited  to  the  other  "  depends  on  a  "  fair  "  construc- 
tion of  tlie  whole  instrument,  because  the  word  "  expressly  " 
was  left  out  of  the  clause  "  that  the  powers  not  delegated  to 
the  United  States  nor  prohibited  to  the  States  are  reserved  to 
the  States  or  to  the  people."  It  is  noticeable  that  a  national 
bank  is  the  only  corporation  that  Congress  has  seen  proper 
to  incorporate  under  the  construction. 

Chief  Justice  Marshall  further  stated  that  "although 
among  the  enumerated  powers  of  Government  we  do  not 
find  the  words  '  bank  or  incorporation,'  we  find  the  great 
powers  to  lay  and  collect  taxes,  to. borrow  money,  to  regu- 
late commerce,  to  declare  and  conduct  war,  and  to  raise  and 
support  armies  and  navies.  ...  It  can  never  be  pretended 
that  those  vast  powers  draw  after  them  others  of  inferior 
importance,  merely  because  they  are  inferior.  .  .  .  Such  an 
idea  can  never  be  advanced.  .  .  .  But  it  may  with  great 
reason  be  contended  that  a  Government  entrusted  with  ample 
powers,  on  the  due  execution  of  which  the  happiness  and 
prosperity  of  the  nation  so  vitally  depend,  must  also  be 
entrusted  with  ample  means  for  their  execution.  ...  It  can 
never  be  the  interest,  and  can  not  be  presumed  to  have  been 
their  intention,  to  clog  and  embarrass  its  execution  by  with- 
holding the  most  appropriate  means." 

One   reading   the   above   in   the   consciousness   that    the 


204  The  Legal-Tender  Problem 

power  was  withheld  from  Congress  to  grant  charters  for 
fear  that  it  would  be  abused  by  chartering  a  bank,  and  that 
the  power  "  to  emit  bills  on  the  credit  of  the  United  States," 
an  essential  and  indispensable  act  of  sovereignty,  was  also 
withheld,  would  naturally  suppose  that  the  chief  justice  was 
referring  to  the  second  and  not  the  first  power  withheld. 

Since  the  power  "  to  emit  bills  of  credit,"  according  to 
the  implied  admission  of  Mr.  Webster,  was  the  exercise  of 
sovereign  power,  and  the  power  to  charter  a  bank  accord- 
ing to  the  admissions  of  both  Mr.  Webster  and  Chief  Justice 
Marshall  only  a  "  means  to  an  end,"  or  an  implied,  certainly 
not  a  delegated  or  sovereign,  power,  it  is  difficult  to  under- 
stand how  the  chief  justice  could  have  been  referring  to 
"  the  means  to  an  end,"  and  not  the  sovereign,  power. 

This  is  the  more  difficult  to  understand  when  it  is  recalled 
that  the  exercise  of  the  sovereign  power  had  been  sold  by 
Congress  to  the  bank  in  the  very  act  that  the  chief  justice 
was  construing ;  and  when  the  further  fact  is  recalled  that 
Congress  was  endeavoring  to  force  out  of  circulation  the 
very  notes  it  had  issued  by  virtue  of  this  sovereign  power,  in 
order  that  the  bank  might  issue  its  notes  in  their  stead  and 
increase  its  profits. 

In  the  discussion  of  the  right  of  the  State  of  Maryland 
to  tax  the  branch  bank,  Mr.  Marshall  stated  "  that  the 
power  of  taxing  by  the  States  may  be  exercised  so  as  to 
destroy,  is  too  obvious  to  be  denied.  ...  It  is  admitted  that 
the  power  of  taxing  the  people  and  their  property  is  essen- 
tial to  the  very  existence  of  the  Government,  and  may  be 
legitimately  exercised  on  the  objects  to  which  it  is  applicable, 
to  the  utmost  extent  to  which  the  Government  may  choose 
to  carry  it. 

"  The  only  security  against  the  abuse  of  this  power  is 
found  in  the  structure  of  the  Government  itself.  ...  In  im- 


McCullou^h  vs.  State  of  Maryland       205 

posing  a  tax  the  Legislature  acts  upon  its  constituents.  .  .  . 
This  is  in  general  a  sufficient  security  against  erroneous  and 
oppressive  taxation. 

"  The  people  of  a  State,  therefore,  give  to  their  Govern- 
ment a  right  of  taxing  themselves  and  their  property ;  and 
as  the  exigencies  of  Government  can  not  be  limited,  they 
prescribe  no  limit  to  the  exercise  of  this  right,  resting  con- 
fidently on  the  interest  of  the  legislator,  and  the  influence  of 
the  constituents  over  their  representatives,  to  guard  them 
against  its  abuse. 

"  But  the  means  employed  by  the  Government  of  the 
Union  have  no  such  security,  nor  is  the  right  of  a  State 
to  tax  them  sustained  by  the  same  theory.  .  .  .  Those  means 
are  not  given  by  the  people  of  a  particular  State,  nor  given 
by  the  constituents  of  a  Legislature  which  claim  the  right 
to  tax  them,  but  by  the  people  of  all  the  States.  .  .  .  They 
are  given  by  all,  for  the  benefit  of  all,  and  upon  theory 
should  be  subjected  to  the  Government  only  which  belongs 
to  all. 

"It  may  be  objected  to  this  definition,"  he  said,  "that 
the  power  of  taxation  is  not  confined  to  the  people  and  the 
property  of  the  State.  It  may  be  exercised  upon  every  object 
brought  within  its  jurisdiction.  This  is  true.  .  .  .  All  sub- 
jects over  which  the  sovereign  power  of  a  State  extends 
are  objects  of  taxation;  but  those  over  which  it  does  not 
extend  are,  upon  the  soundest  principles,  exempt  from  tax- 
ation. .  .  .  The  sovereignty  of  a  State  extends  to  every- 
thing which  exists  by  its  own  authority,  or  is  introduced  by 
its  permission ;  but  does  it  extend  to  those  means  which  are 
employed  by  Congress  to  carry  into  execution  powers  con- 
ferred on  that  body  b\-  the  people  of  the  United  States  ?  We 
think  it  demonstrable  it  does  not.  .  .  .  Those  powers  are 
not  given  by  the  people  of  a  single  State.  .  .  .  They  are 


2o6  The  Le^al-Tender  Problem 

given  by  the  people  of  the  United  States,  to  a  Government 
whose  laws,  made  in  pursuance  of  the  Constitution,  are 
declared  to  be  supreme.  .  .  .  Consequently  the  people  of  a 
single  State  can  not  confer  a  sovereignty  which  will  extend 
over  them." 

This  reasoning  which  releases  the  property  of  those  doing 
a  banking  business  under  a  charter  granted  by  Congress, 
from  bearing  its  due  share  of  the  burden  of  State  govern- 
ment, appears  strained  and  crude  in  the  light  of  the  modern 
practise  of  the  Supreme  Court  of  the  United  States. 

The  influence  of  the  only  powerful  corporation  of  that 
day  induced  Mr.  Marshall  to  relieve  the  Bank  of  the  United 
States  from  the  payment  of  the  State  tax,  though  it  was 
operating  within  its  territory,  was  dependent  upon  its  pro- 
tection, and  owed  its  prosperity  to  the  patronage  of  its 
citizens. 

The  influence  of  the  powerful  corporations  which  have 
grown  up  under  the  decisions  in  that  and  the  Dartmouth 
College  cases,  has  caused  the  Supreme  Court  to  overrule  Mr. 
Marshall  in  the  principle  so  well  stated  that  "  the  people  of 
a  State  give  to  their  Government  a  right  of  taxing  them- 
selves and  their  property ;  and  as  the  exigencies  of  a  Govern- 
ment can  not  be  limited,  they  prescribe  no  limit  to  the  exer- 
cise of  this  right,  resting  confidently  on  the  interest  of  the 
legislator,  and  on  the  influence  of  the  constituents  over  their 
representatives,  to  guard  them  against  its  abuse." 

Following  his  example,  and  ignoring,  as  he  did,  his  pre- 
cept,— 'that  the  sovereign  power  of  a  State  to  tax,  undis- 
turbed and  uncontrolled  by  any  power,  extends  to  every- 
thing which  exists  by  its  own  authority,  or  is  introduced 
by  its  permission, — •  the  Federal  courts  now  set  aside  and 
regulate  the  assessment  and  payment  of  the  State  taxes  of 


McCiillougli  vs.  State  of  Maryland       207 

corporations  iijion  the  assumption  of  its  enlarged  equity 
jurisdiction  under  the  fourteentli  amendment  to  the  Consti- 
tution, 

The  decision  of  Chief  Justice  Marshall  in  the  case  of 
McCullough  vs.  State  of  Maryland,  that  Congress  had  the 
power  to  charter  a  bank,  and  that  the  State  of  Maryland 
had  no  right  nor  power  to  tax  a  branch  of  said  bank,  secured 
to  the  bank,  for  the  life  of  its  charter,  greater  immunity  than 
had  been  thought  of  when  the  act  of  Congress  granting  the 
charter  was  passed.  And  his  decision  in  the  Dartmouth  Col- 
lege case,  that  a  charter  was  a  contract  protected  by  the  Con- 
stitution, and  in  the  exercise  of  its  rights  and  privileges  not 
amenable  to  nor  under  the  control  of  the  State, —  secured  to 
the  money  power  a  commercial  machinery  which  has  been 
phenomenally  successful  in  enabling  them  to  transfer  the 
property  of  the  people  to  themselves  in  defiance  of  the 
States. 

The  argument  of  Mr.  Webster  and  the  reasoning  of 
Chief  Justice  Marshall  in  the  case  of  McCullough  vs.  State 
of  Maryland,  was  apparently  so  sincere  that  many,  in  read- 
ing them,  would  suppose  there  could  not  have  been  any  inti- 
mation at  that  time  of  the  governmental  and  financial  abuse 
that  the  experience  of  subsequent  years  has  demonstrated 
was  practised  upon  the  people. 

But  a  single  quotation  from  the  report  of  the  legislative 
committee  of  the  State  of  New  York  in  181 8  shows  that 
the  evils  of  such  abuses  were  felt  and  known  in  that  early 
period.    The  quotation  is  as  follows :  — 

"  Of  all  the  aristocracies,  none  more  completely  enslaves 
the  people  than  that  of  money ;  and,  in  the  opinion  of  your 
committee,  no  system  was  ever  better  devised  to  perfectly 
enslave  a  communitv  than  that  of  the  present  mode  of  con- 


2o8  The  Le^al-Tender  Problem 

ducting  banking  establishments.  Like  the  siren  of  the  fable, 
they  entice  but  to  destroy.  They  hold  the  purse  strings  of 
society ;  and  by  monopolizing  the  whole  of  the  circulating 
medium  of  the  country,  they  form  a  precarious  standard  by 
which  all  property  in  the  country  —  houses,  lands,  debts,  and 
credits,  personal  and  real  estates  of  all  descriptions  —  are 
valued. 


XX 

Report  of  n\  H.  Crawford,  Secretary  of  the 

Treasury 

One  of  the  most  remarkable  papers  of  this  remarkable 
period  is  the  report  of  Mr.  \Vm.  H.  Crawford,  secretary  of 
the  treasury,  to  the  House  of  Representatives,  dated  Feb- 
ruary 12,  1820.  It  sets  out  the  condition  of  the  Bank  of 
the  United  States  as  of  September  30,  1819.  It  shows  that 
the  capital  stock  was  $34,987,828.83;  notes  issued,  $13,392,- 
288.49;  tiue  individual  depositors,  $2,631,453.76;  due  treas- 
urer of  the  United  States  on  account  of  deposits,  $1,097,- 
263.33;  ^"6  deposit  by  public  officers,  $1,709,899.82;  due 
miscellaneous  accounts,  $1,365,726.36;  a  total  of  $54,465,- 

550.57- 

There  was  on  hand  to  meet  this  liability,  $3,254,479.91 

of  specie;  notes  of  State  banks,  $1,133,928.86,  and  notes  of 
its  own  bank,  $10,582,147.09;  as  a  reserve  or  working  cap- 
ital, $7,252,591.94  interest-bearing  funded  debt  of  the  United 
States,  and  the  balance  personal  loans,  bills  of  exchange, 
debts  due  from  State  bank,  etc. 

It  will  be  seen  from  this  statement  that  the  bank  had 
issued  four  times  as  many  notes  as  it  had  specie  to  redeem 
them,  and  was  ready  to  issue  about  three  and  one-half  times 
as  many  more,  if  it  could  safely  and  profitably  do  so. 

Said  report  also  shows  the  condition  of  the  banks  in  the 
States,  Districts,  and  Territories  so  far  as  known.  Aggre- 
gate capital  stock,  $72.340.770.64 ;  notes  in  circulation,  $35,- 
770,902.41  ;  deposits,  public  and  private.  $14,583,681.74. 

They  had  on  hand  to  meet  these  liabilities,  specie,  $9,828,- 
14  209 


2IO  The  Le^al-Tender  Problem 

745.21 ;  notes  of  other  banks,  $7,616,252.54,  as  a  reserve 
or  working  capital,  and  the  balance  in  personal  loans,  bills 
of  exchange,'  etc.  It  will  be  seen  that  the  State  banks  issued 
nearly  four  times  as  many  notes  as  they  had  specie  with 
which  to  redeem  them. 

The  report  estimates  the  entire  specie  possessed  by  the 
State  banks  at  $12,250,000;  the  specie  of  the  Bank  of  the 
United  States  and  offices  at  $3,250,000 ;  the  specie  in  circula- 
tion at  $4,500,000 ;  the  whole  metallic  currency  of  the  United 
States  at  $20,000,000. 

"  Treating  only  such  notes  as  are  in  circulation  and  not 
held  in  banks,"  he  said,  "  as  issued,  it  is  probable  that  the 
actual  circulation,  both  of  paper  and  specie,  is  less  at  this 
time  than  $45,000,000."  By  the  same  mode  of  calculation 
Mr.  Crawford  estimated  the  whole  amount  of  discbunts  at 
$156,000,000. 

He  then  undertook  to  estimate,  from  such  data  as  was 
preserved,  the  capital  stock  of  the  banks,  the  specie,  the  cir- 
culation, and  discounts  for  the  3^ears  1813,  1815,  and  1819:  — 

YEAR.  BANK   CAPITAL.  SPECIE.  CIRCULATION  DISCOUNTS. 

1813  $  65,000,000  $28,000,000  $62,000,000  $117,000,000 

1815      88,000,000     16,500,000     99,000,000     150,000,000 

1819       125,000,000       21,500,000       53,000,000      157,000,000 

He  stated  that  while  the  bank  capital  had  increased  since 
1 81 3  from  $65,000,000  to  $125,000,000,  the  metallic  base 
upon  which  the  circulation  of  notes  rest,  had  decreased. 

Mr.  Crawford  did  not  undertake  to  ascertain  how,  in 
1 81 9,  $21,500,000  of  specie,  through  the  instrumentality  of 
a  bank,  could  generate  $53,000,000  in  notes,  and  through 
the  agency  of  these  notes  create  a  debt  of  $157,000,000  due 
the  banks. 

In  his  desire  to  secure  a  starting  point  upon  which  to 


Report  of  JV.  H.    Crawford  211 

base  his  further  observations,  he  assumed  that  the  amount  of 
circulation  in  1813  was  sufficient  to  efifect  the  exchanges  of 
the  country  with  faciUty  and  advantage. 

Therefore,  he  reasoned,  inasmuch  as  in  the  year  18 13  the 
bank  capital  was  $65,000,000.  the  specie  $28,000,000,  the  cir- 
culation $62,000,000,  and  the  discount  $117,000,000,  any 
departure  from  those  proportions  must  be  erroneous  in 
finance,  and  the  cause  of  disaster. 

It  is  estimated,  he  stated,  that  in  18 15  the  circulation 
arose  to  $110,000,000,  and  this  amount  was  probably  aug- 
mented in  1816;  while  at  the  close  of  1819,  ii  was  only 
$45,000,000.  Commenting  upon  this  statement  of  facts,  he 
writes,  "All  intelligent  writers  upon  currency  agree  that 
where  it  is  decreasing  in  amount,  'poverty  and  misery  must 
prevail."  The  correctness  of  the  opinion  is  too  manifest 
to  require  proof.  "The  united  voice  of  the  nation  attests 
its  accuracy.  .  .  .  As  there  is  no  recorded  example  in  the 
history  of  nations  of  a  reduction  of  the  currency  so  rapid 
and  extensive,  so  but  few  examples  have  occurred  of  dis- 
tress so  general  and  so  severe  as  that  which  has  been  exhib- 
ited in  the  United  States.  .  .  . 

"  During  the  greater  part  of  the  time  that  has  elapsed 
since  the  resumption  of  specie  payments,  the  convertibility  of 
the  bank-notes  into  specie  has  been  rather  nominal  than  real 
in  the  largest  portions  of  the  Union.  .  .  .  The  convertibility 
of  bank-notes  into  specie  is  becoming  real  wherever  it  is 
ostensible.  ...  If  public  opinion  does  not  correct  the  evil 
in  those  States  where  this  convertibility  is  not  even  osten- 
sible, it  will  be  the  imperious  duty  of  those  who  are  invested 
with  the  power  of  correction  to  apply  the  appropriate 
remedy." 

The  above  is,  in  part,  the  report  of  the  ablest  secretary 
of  the  treasury  upon  the  following  facts  :  That  for  good  cause 


212  The  Le<xcil -Tender  Problem 

Congress  refused  in  1809  to  renew  the  charter  of  the  Bank 
of  the  United  States ;  it  was  therefore  forced  into  liquidation, 
the  State  banks  had  the  field  of  finance  to  themselves,  and 
many  came  into  existence.  In  18 12  war  with  England  was 
declared;  and  though  the  State  banks  bravely  struggled  to 
assist  the  Government,  at  much  profit  to  themselves,  they 
were  destroyed  by  the  United  States  Bank  faction  withdraw- 
ing all  the  specie  from  their  vaults.  Congress  thereupon 
issued,  in  small  denominations,  irredeemable  non-interest- 
bearing  treasury  notes,  as  legal  tenders  for  all  debts  due  the 
Government.  These  treasury  notes,  notwithstanding  they 
were  not  a  legal  tender  for  private  debts,  withstood  the 
assaults  of  the  bank  faction  until  18 17,  when  Congress 
granted  a  charter  to  the  Second  Bank.  In  the  seventeenth 
section  of  this  act,  the  resumption  of  specie  payment  was 
made  imperative,  and  so  much  of  a  previous  act  as  made  it 
lawful  for  the  treasurer  to  cause  the  treasury  notes  to  be 
reissued,  was  repealed.  To  secure  the  benefit  of  this  provi- 
sion, the  Second  Bank  limited  its  issue  of  notes  to  a  safe 
minimum,  and  refused  to  receive  the  notes  of  any  and  all 
State  banks,  thereby  forcing  their  depreciation  in  value  and 
retirement,  until  the  circulating  currency  was  reduced  from 
$110,000,000  in  1816  to  $45,000,000  in  18 19. 

It  is  strange  that  Mr.  Crawford  could  see  the  results  of 
this  class  legislation  so  clearly,  and  know  that  it  came  from 
a  contraction  of  the  currency,  and  yet  have  no  appreciation 
of  the  motives  that  made  it  possible  and  seemingly  natural. 
His  remedy  is  set  forth  in  the  following :  — 

"As  currency  is,  at  least  in  some  parts  of  the  Union, 
depreciated,  it  must,  in  those  parts,  suffer  further  reduction 
before  it  becomes  sound.  .  .  .  The  nation  must  continue  to 
suffer  until  this  is  effected.  After  the  currency  shall  be 
reduced  to  the  amount  which,  when  the  present  quantity  of 


Report  of  JF .  H.   Crauiord  213 

the  precious  metals  is  distributed  among  the  various  nations 
of  the  world,  in  proportion  to  their  respective  exchangeable 
values,  shall  be  assigned  to  the  United  States;  when  time 
shall  have  regulated  the  price  of  labor,  and  of  commodities 
according  to  the  amount;  and  when  pre-existing  engage- 
ments shall  have  been  adjusted,  the  sufferings  from  a  depre- 
ciated, decreasing  and  deficient  currency  will  be  terminated. 
Individual  and  public  prosperity  will  gradually  revive,  and 
the  productive  energies  of  the  nation  resume  their  accus- 
tomed activity. 

"  But  new  changes  in  the  currency,  and  circumstances 
adverse  to  the  perpetuity  of  the  general  prosperity,  may 
reasonably  be  expected  to  occur.  So  far  as  these  changes 
depend  upon  the  currency,  their  recurrence  to  an  extent  suffi- 
cient to  disturb  the  prosperity  of  the  nation  would  be 
effectually  prevented,  if  it  could  be  rendered  purely  metallic. 
But  when  currency  is  metallic,  and  i)aper  convertible  into 
specie,  changes  to  such  an  extent,  it  is  believed,  will  fre- 
quently occur." 

The  only  remedy  Mr.  Crawford  can  suggest  to  ward  off 
such  evils  as  are  always  attendant  upon  a  redundancy  and 
then  a  contraction  of  the  currency,  is  that  the  circulating  cur- 
rency should  be  purely  metallic.  ^Ir.  Crawford's  idea 
seemed  to  be  that  the  volume  of  business  should  be  confined 
to  the  volume  of  metallic  money  that  could  be  secured  and 
retained  in  the  country,  and  that  no  business  should  be  en- 
gaged in  that  could  not  promptly  meet  all  payments  in  cash ; 
or,  if  any  credit  at  all  was  used,  it  should  be  so  limited  that 
under  no  possible  circumstances  would  the  confidence  of 
the  creditor  in  the  ability  of  the  debtor  to  pay  all  he  owed, 
be  in  the  slightest  disturbed.  The  adoption  of  such  a  system 
would  force  all  the  business  of  the  country  to  a  volume  that 
could  be  conducted  by  the  cash  system,  aided  by  credits, 


214  The  Le^al-Tender  Problem 

or    personal    confidence,    as    contradistinguished    from    the 
"  credit  system." 

It  is  v>cll  known  that  the  actual  use  of  money  in  the  settle- 
ment of  the  balances  of  the  vast  volume  of  business  carried 
on  by  the  "  credit  system,"  and  in  the  business  carried  on  by 
the  cash  system,  is  not  more  than  three  per  cent  of  the  vol- 
ume of  the  two ;  and  yet,  theoretically  and  legally,  this  vast 
amount  of  credit  is  payable  on  demand  in  specie.  It  is  im- 
possible, in  the  first  place,  to  conduct  the  vast  volume  of 
business  in  the  credit  system  by  the  use  of  specie,  for  the 
daily  handling  of  the  amount  needed  would  create  an  expense 
and  cause  a  delay  that  would  destroy  all  possible  profits ;  if, 
indeed,  in  the  second  place,  the  necessary  amount  of  specie 
could  be  had.  Therefore,  the  enlarged  prosperity  of  a 
nation,  and  its  advance  along  the  lines  of  civilization,  Chris- 
tianity, and  the  higher  arts,  depend  upon  the  judicious  use 
that  is  made  of  the  "  credit  system  "  in  promoting  and  aiding 
all  those  grand  enterprises  which  make  the  honor  and  glory 
of  a  country. 

It  is  evident  that  the  abuses  which  tend  to  defeat  the  effi- 
ciency of  the  "  credit  system  "  should  be  warded  ofif  and  pro- 
vided against,  and  not  fostered  and  encouraged  by  the  Gov- 
ernment. It  is  equally  evident  that  no  power,  except  that 
of  the  Government,  has  the  motive  and  the  strength  to  ward 
ofi^  the  imposition  of  such  abuses  as  avarice  would  engraft 
upon  the  system. 

An  examination,  with  a  view  to  gather,  in  its  last  analysis, 
the  purity  of  a  financial  system  that  would  care  for  and  pro- 
mote the  welfare  of  the  people  as  individuals,  and  as  organ- 
ized bodies  seeking  happiness  and  comfort,  would  have 
shown  that  there  was  a  deadly  antagonism  between  business 
conducted  by  the  cash  system  aided  by  credit  —  mostly  the 
retail  trade  of  the  country  —  and  the  large  wholesale  busi- 


Report  of  IF.  H.   Crawford  215 

ness  conducted  by  means  of  "  bookkecpinpf."  or  the  "  credit 
system." 

It  would  have  been  seen  that  as  the  people,  by  the  inces- 
sant and  tireless  application  of  their  labor  to  the  reduction 
of  a  primeval  country  to  their  needs  and  enjoyments,  de- 
manded and  forced  in  some  way  the  issue  of  mediums  of 
payment,  or  tools,  with  which  to  work,  they  were  invariably 
set  back,  despoiled,  and  dispirited  by  the  fact  that  their  tools 
were  made  worthless,  as  soon  as  the  cry  was  raised  that  there 
was  not  enough  specie  to  redeem  them. 

The  result  always  is  a  cessation  of  all  activity,  and  a  rush 
to  cover ;  and  in  this  rush  every  one  was  only  concerned  in 
securing  specie  to  pay  his  obligations.  This  competition  for 
specie,  by  those  engaged  in  the  retail  trade  and  those  engaged 
in  the  wholesale  transactions,  made  it  possible  for  the  own- 
ers to  collect  three  or  four  times  the  value  of  their  specie ; 
and  as  it  passed  from  one  person  to  another,  those  who 
were  lucky  enough  to  secure  it,  saved  themselves  in  part  from 
loss,  and  as  they  in  turn  parted  with  it,  recouped  in  some 
degree  the  loss  they  sustained ;  but  inasmuch  as  the  law 
forced  settlement  before  the  debtor  was  enabled  to  secure 
the  specie,  he  in  many  instances  lost  all  he  had. 

The  large  operations  which  build  up  the  country,  and 
which  become  larger  and  more  essential  to  the  prosperity  of 
all  enterprise,  can  not  be  conducted  without  the  use  and  con- 
tinual enlargement  of  "  credits,"  and  are  incessantly  forc- 
ing their  issues.  The  retail  business  and  smaller  transac- 
tions conducted  by  cash  and  personal  confidence,  or  credit,  as 
distinguished  from  the  "  credit  system,"  are  jeopardized  and 
made  hazardous  as  credits  are  increased.  Therefore  in  this 
natural  and  unavoidable  antagonism  of  the  two  separate 
systems  of  conducting  business,  when  they  are  welded  to- 
gether by  their  dual  dependence  upon  redemption  in  specie, 


2i6  The  Legal-Tender  Problem 

the  enlargement  of  credits,  which  causes  the  prosperity  of 
the  large  operations,  is  the  jeopardy  of  both;  and  the  with- 
drawal of  credit  money,  to  a  point  that  insures  protection 
to  the  retail  business,  is  the  destruction  of  all  profit  in  both. 

The  evils  that  arise  from  the  interdependence  of  the  two 
systems  as  the  one  or  the  other  prevails, — •  inflation  or  con- 
traction,—  has  been  the  history  of  our  finances,  and  it  will 
continue  until  the  dual  dependence  of  the  currency,  used  in 
both  systems,  on  specie  is  changed.  Instead  of  this  Govern- 
ment so  legislating  that  this  dual  dependence  would  be  re- 
moved, and  the  antagonism  of  the  two  systems  be  destroyed 
or  adjusted,  it  has  increased  the  antagonism,  and  made  both 
systems  of  conducting  business  more  hazardous  by  forcing 
the  currency  and  credits  used  in  each  to  a  reliance  on  the 
gold  dollar. 

The  trend  of  the  business  spirit  of  this  country  is  irresist- 
ibly to  larger  and  still  larger  operations ;  and  as  credits  are 
increased  to  meet  the  demand,  there  will  be  such  accessions 
of  "  credit  money  "  to  the  volimie,  that  when  confidence  in 
the  ability  of  gold  to  redeem  all  these  evidences  of  debt  has 
vanished,  and  demand  is  made  for  their  payment  in  gold, 
the  evils  of  all  past  panics  will  pale  into  insignificance  before 
the  horrors  of  the  next  one. 

Mr,  Crawford  appreciated  fully  the  evil,  but  because  the 
money  power  had  insidiously  gotten  into  the  Constitution 
the  heresy  that  only  gold  and  silver  should  be  the  basic  money 
of  the  country,  he  saw  no  remedy  except  to  let  the  people 
continue  to  suffer  until  a  pure  metallic  currency  was  reached. 
If  the  fate  of  those  who  had  suffered  and  were  suffering  so 
severely  did  not  operate  to  constrain  a  vigorous  race  to 
make  the  most  of  the  opportunities  so  bountifully  presented, 
by  such  aid  as  was  offered  by  the  United  States  Bank  and 
the  gold  and  silver  coins,  then  he  saw  nothing  but  similar 


Report  of  JV.  H.   Crawford  217 

suffering  for  them  in  the  recurring  periods  of  expansion  and 
contraction  that  would  necessarily  and  inevitably  occur. 

It  is  strange  that  so  able  a  financier  as  Mr.  Crawford 
did  not  realize  that  it  was  the  dependence  of  the  two  separate 
and  antagonistic  systems  upon  gold  and  silver  that  made 
the  conditions  of  which  he  complained ;  and  that  he  did  not 
suggest  a  remedy  which  would  have  destroyed  this  dual 
dependence,  and  established  the  independence  of  each  from 
the  other.  But  instead  of  doing  that,  and  formulating  a 
system  that  would  have  encouraged  and  sustained  the  inces- 
sant and  progressive  activity  of  the  Anglo-Saxon  in  his 
indomitable  inclination  to  labor,  Mr.  Crawford  indulged  in 
the  following  reflection  :  — ■ 

"  That  the  establishment  of  banks  in  agricultural  dis- 
tricts has  greatly  improved  the  general  appearance  of  the 
country,  is  not  denied.  .  .  .  Comfortable  mansions  and  spa- 
cious barns  have  been  erected ;  lands  have  been  cleared  and 
reduced  to  cultivation ;  farms  have  been  stocked  and  ren- 
dered more  productive,  by  the  aid  of  '  bank  credits.'  .  .  . 
But  those  improvements  will  eventually  be  found,  in  most 
cases,  to  effect  the  ruin  of  the  proprietor.  .  .  .  The  farm 
with  its  improvements  will  frequently  prove  unequal  to 
the  discharge  of  the  debts  incurred  in  its  establishment.  .  .  . 
Such  in  fact  is  the  actual  or  apprehended  state  of  things 
wherever  banks  have  been  established  in  the  small  inland 
towns  and  villages.  .  .  .  Poverty  and  distress  are  impending 
over  the  heads  of  most  of  those  who  have  attempted  to 
improve  their  farms  by  the  aid  of  the  bank  credit.  .  .  .  The 
o-eneral  svstem  of  credit  which  has  been  introduced  through 
the  agency  of  banks  brought  home  to  every  man's  door,  has 
produced  a  factitious  state  of  things,  extremely  adverse  to 
the  sober,  frugal,  and  industrious  habits  which  ought  to  be 
cherished  in  a  republic.  ...  In  the  place  of  these  virtues, 


2i8  The  Legal-Tender  Problem 


extravagance,  idleness,  and  the  spirit  of  gambling  adventure 
have  been  engendered  and  fostered  by  our  institutions." 

It  is  strange  that  Mr.  Crawford  should  have  been  led  into 
an  attempt  to  explain  away  and  deny  the  evidences  of  his 
senses, —  viz.,  that  these  credits,  or  expressions  of  labor 
value,  were  highly  advantageous  to  the  development  of  the 
country, —  and  indulge  the  erroneous  assertion  that  they 
fostered  extravagance,  idleness,  and  a  spirit  of  gambling. 
He  seems  to  have  had  no  appreciation  whatever  of  the  true 
cause  of  the  evils  he  declaimed  against,  and  did  not  under- 
stand that  the  condition  of  affairs  he  so  much  deprecated 
was  due  solely  to  the  abuse  engrafted  upon  the  financial 
system  in  the  constitutional  heresy  which  gives  and  guaran- 
tees the  right  to  demand  the  redemption  of  all  paper  cur- 
rency, as  well  as  all  credits,  in  specie,  notwithstanding  it  is 
an  impossibility. 

It  is  only  fair  to  Mr.  Crawford,  after  the  comments  that 
have  been  made,  that  he  be  given  a  chance  to  redeem  him- 
self, which  h€  does  to  some  extent  in  that  part  of  his  report 
that  is  responsive  to  the  request  "  to  report  such  measures 
as  in  his  opinion  may  be  expedient  to  supply  a  circulating 
medium  in  place  of  specie,  adapted  to  the  exigencies  of  the 
country  and  within  the  power  of  the  Government." 

This  last  request  of  the  House  of  Representatives  to  the 
secretary  of  the  treasury  justified  an  exhaustive  consideration 
of  the  financial  policy  which  would  best  subserve  the  inter- 
est of  the  people ;  for,  as  Mr.  Crawford  observes,  "  it 
assumes  by  implication  the  practicability  of  substituting,  by 
the  constitutional  exercise  of  the  powers  of  Congress,  a 
paper  currency  for  that  which  now  exists." 

It  will  be  seen  that  the  clear  thinking  and  pure  reason- 
ing of  the  secretary,  and  the  conclusions  j:hat  perforce  and 
logically  must  be  drawn  from  his  expositions  and  deductions, 


Report  of  JV .  H.   Crawford  219 

were  ignored,  because  of  his  sincere  but  erroneous  accept- 
ance of  the  heresy  engrafted  upon  the  Constitution  that  only 
gold  and  silver  coins  should  be  legal  tender,  or  solvents  of 
debts,  and  the  consequent  deduction  that  all  paper  issues, 
as  well  as  all  credits,  were  redeemable  in  specie.  He  leads  up 
to  the  discussion  with  the  following  observations  upon  the 
power  of  Congress  over  the  currency :  — 

"  In  considering  the  power  of  Congress  over  the  currency 
of  the  United  States,  it  can  not,  consistently  with  the  respect 
that  is  due  to  that  body,  be  either  affirmed  or  denied.  ...  It 
can  not  be  supposed  that  the  House  of  Representatives,  in 
adopting  the  resolution  in  question,  intended,  through  the 
agency  of  an  executive  department  of  the  Government,  to 
institute  an  inquiry  as  to  the  extent  of  the  constitutional 
authority  of  a  body,  of  which  it  is  only  a  constitutional 
member.  .  .  .  Yet  it  will  necessarily  occur  to  the  House 
that  if  the  power  of  Congress  over  the  currency  is  not  abso- 
lutely sovereign,  the  inquiry,  whatever  may  be  its  immediate 
result,  must  be  always  without  any  ultimate  result.  .  .  . 
The  general  prosperity  ivill  not  be  advanced  by  demon- 
strating that  there  is  no  intrinsic  obstacle  to  the  substitution 
of  a  paper  for  a  metallic  currency,  if  the  poiver  to  adopt 
the  substitute  has  been  ii.'ithheld  from  the  Federal  Gov- 
ernment." 

He  abandons  all  chance  to  arrive  at  a  scientific  conclu- 
sion, confounds  his  reasoning  in  inextricable  confusion,  and 
draws  the  most  illogical  deductions  by  the  acceptance  of  the 
following  predicate :  "At  the  threshold  of  this  inquiry  it  is 
proper  to  observe  that  it  is  deemed  unnecessary  to  present 
an  analysis  of  the  motives  which  led,  even  in  the  most  re- 
mote antiquity,  to  the  general  adoption  by  the  civilized 
States  of  gold  and  silver  as  the  standard  of  value,  or  of  the 
advantages  which  have  resulted  from  that  adoption." 


220  The  Legal-Tender  Problem 

It  is  evident  that  if  he  refrains  from  an  analysis  of  the 
motives  which  led  to  the  adoption  of  gold  and  silver  as 
"the  standard  of  value,"  meaning,  it  is  supposed,  standard 
of  payment,  he  will  not  ascertain  what  those  motives  were; 
and  consequently,  having  no  standard  of  the  correct,  he 
will  have  no  guide  to  indicate  the  true,  nor  a  criterion  to 
detect  the  false,  motives  which  prompt  greed  to  engraft 
abuse  upon  the  financial  system.  It  is  therefore  evident 
that  if,  in  the  course  of  the  centuries,  abuses  have,  through 
the  machinations  of  the  designing,  become  an  integral  part 
of  the  system,  he  accepted  the  evil  with  the  good,  and  gave 
both  the  same  legal  consideration  that  should  only  be  given 
the  latter. 

"  The  circumstances  to  which,  in  the  course  of  the  inves- 
tigation," he  stated,  "  it  will  be  necessary  to  advert,  is  the 
tendency  which  a  metallic  currency  has  to  preserve  a  greater 
uniformity  of  value  than  any  other  commodity ;  and  the 
facility  with  which  it  returns  to  that  value,  whenever  by  any 
temporary  cause  that  uniformity  has  been  interrupted.  .  .  . 
No  argument  will,  in  this  place,  be  offered  in  support  of  this 
proposition.  ...  It  is  founded  in  the  experience  of  all  na- 
tions. ...  Its  truth,  for  the  present,  will  therefore  be 
assumed." 

That  "  a  metallic  currency  has  a  tendency  to  preserve  a 
greater  uniformity  of  value  than  any  other  commodity,"  is 
true  in  the  sense  that  it  is  equal  in  value  to  itself;  and  in 
the  proportion  established,  gold  and  silver  varied  but  little 
at  the  time  he  wrote.  Since  his  day,  however,  legislation 
favorable  to  gold  and  hostile  to  silver  has  destroyed  the 
truth  of  the  assertion  so  confidently  stated  by  him  as 
"  founded  in  the  experience  of  all  nations,"  and  demonstrates 
that  the  impurity  of  the  motives,  which  he  did  not  deem  it 
necessary  to  analyze,  has  succeeded  in  breaking  down  the 


Report  of  JV.  11.   Crawford  221 

constitutional  safeguard  that  both  gold  and  silver  should  be 
the  money  of  the  country. 

That  a  "  metallic  currency  has  a  tendency  to  preserve  a 
greater  uniformity  of  value  than  any  other  commodity  "  as 
to  the  value  of  the  products  of  this  country,  was  as  incor- 
rect a  statement  then  as  it  is  to-day,  and  as  Mr.  Crawford 
proceeds  with  his  report  he  unconsciously  assigns  the  rea- 
sons therefor. 

"  It  is  maintained  by  all  intelligent  writers  upon  the  sub- 
ject," he  stated,  "  that  the  demand  for  currency,  at  present, 
throughout  the  w^orld,  is  greater  than  the  supply  which  the 
existing  quantity  of  the  precious  metals  will  afford,  with- 
out materially  depressing  the  price  of  all  the  objects  of 
human  industry  and  human  desires.  .  .  .  When  it  is  recol- 
lected that  production  is  regulated  by  demand,  and  that 
both  are  directly  affected  by  the  quantity  of  currency  com- 
pared with  the  quantity  of  articles  to  be  exchanged,  it  is 
readily  perceived  that  an  increase  in  the  currency  of  the 
world  by  the  substitution  of  paper,  even  when  convertible 
into  coin,  will  increase  the  quantity  of  exchangeable  com- 
modities in  the  world  beyond  what  would  have  existed  had 
such  increase  of  currency  not  taken  place.  .  .  .  Under  such 
circumstances,  a  sudden  reduction  of  the  currency  by  the 
rejection  of  the  paper  which  had  been  employed,  could  not 
fail  to  derange  all  the  relations  of  society  by  diminishing 
the  quantity  of  currency,  whilst  the  articles  to  be  exchanged 
through  its  agency  would  suffer  no  such  diminution. 

"An  immediate  depression  in  the  price  of  all  commod- 
ities would  be  inevitable  in  consequence  of  an  unqualified 
return  to  a  metallic  currency,  upon  the  supposition  that  the 
quantity  of  gold  and  silver  annually  produced  should  remain 
undiminished.  .  .  .  But  if  this  return  to  a  metallic  currency 
should  be  attempted  at  a  period  when  the  annual  product 


222  The  Legal-Tender  Problem 

of  these  metals,  either  from  temporary  or  permanent  causes, 
should  have  considerably  decreased,  all  the  great  interests 
of  society  would  be  most  seriously  disordered ;  property  of 
every  description  would  rapidly  fall  in  value ;  the  relations 
between  creditor  and  debtor  would  be  violently  and  suddenly 
changed.  .  .  .  This  change  would  be  greatly  to  the  injury 
of  the  debtor ;  the  property,  which  would  be  necessary  to 
discharge  his  debts,  would  exceed  that  which  he  had  received 
from  his  creditor ;  the  one  would  be  mined  zuithout  the 
imputation  of  crime,  whilst  the  other  would  be  enriched 
zuithout  the  semblance   of  merit. 

"  Until  the  engagements  existing  at  the  moment  of  such 
a  change  are  discharged,  and  the  price  of  labor  and  com- 
modities is  reduced  to  the  proportion  which  it  must  bear 
to  the  quantity  of  currency  employed  as  a  medium  of  ex- 
change, enterprise  of  every  kind  will  be  repressed,  and  misery 
and  distress  universally  prevail.  .  .  .  When  this  shall  be 
effected,  the  relations  of  society,  founded  upon  a  new  basis, 
will  be  equitable  and  just,  and  tend  to  promote  and  secure 
the  general  prosperity." 

When  it  is  remembered  that  these  departures  from  a 
safe  metallic  base  were  made  necessary  by  limiting  the  money 
of  the  country  to  gold  and  silver,  and  that  the  demand  for 
national  currency  was  permitted  to  be  supplied  through  the 
agency  of  banks,  which  were  continually  inciting  and  en- 
couraging the  spirit  of  enterprise  and  development  among 
the  people  by  the  loan  of  bank-notes,  it  seems  like  more  than 
criminal  ignorance  to  fail  to  see  all  this.  It  is  incomprehen- 
sible that  in  the  factional  fight  between  the  national  bank 
and  the  State  banks  for  supremacy,  he  failed  to  appreciate 
that  they  precipitated  the  crisis  that  was  afflicting  the 
country. 

Mr.  Crawford  continues  as  follows :  "  Previous  to  enter- 


Report  of  IV.  H.  Crauford  223 

ing  upon  the  immediate  discussion  of  the  practicabihty  of 
substituting  a  paper  for  a  metallic  currency,  it  is  proper  to 
observe  that  gold  and  silver  derive  part  of  the  uniformity 
of  value  which  has  been  ascribed  to  them,  from  the  general 
consent  of  civilized  states  to  employ  them  as  the  standard 
of  value." 

Stated  in  other  words,  the  general  and  constant  demand 
of  civilized  nations  for  gold  and  silver  to  be  used  as  money, 
when  given  the  value  of  legal  tender,  necessarily  creates  uni- 
formity in  value  to  the  extent  of  the  demand  and  its  con- 
stancy. 

"  Should  they  cease  to  be  used  for  that  purpose,"  he 
stated,  "  they  would  become  variable  in  their  value,  and 
would  be  regulated  like  other  articles,  by  the  demand  for 
them,  compared  with  the  supply  in  any  given  market." 

He  proceeds  as  follows :  "  Having  considered  the  nature 
and  extent  of  the  variations  in  value  to  which  a  metallic  cur- 
rency is  necessarily  subject,  it  remains  to  examine  whether 
it  is  practicable  to  devise  a  system  by  which  a  paper  currency 
may  be  employed  as  the  standard  of  value,  with  sufficient 
security  against  the  variations  in  its  value,  and  with  the 
same  certainty  of  its  recovering  that  value  when,  for  any 
cause,  such  variations  shall  have  been  produced.  ...  It  is 
distinctly  admitted  that  such  paper  currency  has  never  ex- 
isted. .  .  .  Where  the  experiment  has  been  made  directly 
by  Government,  excessive  issues  have  quickly  ensued,  and 
depreciation  has  been  the  immediate  consequence." 

The  fault  with  Air.  Crawford  seems  to  be  that  at  such 
times  as  he  should  have  analyzed  the  subject,  he  accepts 
and  asserts  doctrinal  errors  and  heresies.  If  he  had  exam- 
ined into  the  matter,  he  would  have  ascertained  that  though 
the  republic  of  Venice  did  not  emit  paper  issues,  it  created 
a  much  more  cumbrous  system  of  credits,  the  best  and  only 


224  The  Legal-Tender  Problem 

substitute  that  could  be  devised  before  the  art  of  printing 
was  discovered,  which,  when  made  legal  tender  under  the 
manner  and  /nethod  adopted,  were  never  issued  in  excess, 
but  were  for  five  hundred  years  at  a  premium  over  gold 
and  silver,  and  during  that  time  there  was  not  a  single 
instance  of  expansion  or  contraction  of  the  currency,  such 
as  was  then  disturbing  this  country.  If,  with  a  full  compre- 
hension of  the  methods  of  the  Bank  of  Venice,  he  had 
endeavored  to  formulate  a  system  for  this  country,  aided 
as  he  was  by  the  art  of  printing,  he  would  necessarily  have 
seen  that  the  paper  issues  should  in  no  sense  be  a  debt  or 
obligation  of  the  Government,  and,  therefore,  not  redeemable 
in  specie. 

Instead,  however,  of  making  such  an  examination,  he 
continued  as  follows :  "  Where  the  experiment  has  been  at- 
tempted through  the  agency  of  banks,  it  has  invariably 
failed.  ...  In  both  cases,  instead  of  being  used  as  a  means 
of  supplying  a  cheap  and  stable  currency,  invariably  regu- 
lated by  the  demand,  for  effecting  the  exchanges  required 
by  the  wants  and  conveniences  of  society,  it  has  been  em- 
ployed as  a  financial  resource,  or  made  the  instrument  of 
unrestrained  cupidity.  ...  In  no  case  has  any  attempt  been 
made  to  determine  the  principles  upon  which  such  currency, 
to  be  stable,  must  be  founded.  .  .  .  In  the  case  of  banks,  the 
experiments  which  have  been  made  ivcre  intended  to  be 
temporary ;  they  zvere  the  result  of  great  and  sudden  pres- 
sure, which  left  but  little  leisure  for  the  examination  of  a 
subject  so  abstruse.  .  .  .  The  employment  of  a  paper  cir- 
culation, convertible  into  specie,  the  favorite  system  of  mod- 
ern States,  having,  as  has  been  attempted  to  be  shown  in  a 
previous  part  of  this  report,  the  inevitable  tendency  to  pro- 
duce the  necessity  of  resorting  in  every  national  emergency 
to  paper,  not  so  convertible,  imposes  upon  those  who  are 


Report  of  //'.  H.   Crawford  225 

called  to  administer  the  affairs  of  nations  the  duty  of  thor- 
oughly examining  the  subject,  with  a  view,  if  practicable,  to 
avoid  the  necessity." 

It  is  unaccountable  that  :\lr.  Crawford  should  have  con- 
sidered the  exercise  on  the  part  of  Congress  of  its  sovereign 
power  to  issue  treasury  notes  when  the  country  was  in  peril 
as  the  strongest  evidence  of  the  falsity  of  such  a  system, 
and  as  the  one  thing  for  which  he  must  examine  the  sub- 
ject with  a  view  to  be  avoided  in  the  future. 

Mr.  Crawford  finally  comes  to  the  conclusion  that  to 
insure  the  possibility  of  employing  such  a  currency  with 
advantage  it  is  necessary  that  the  power  of  the  Government 
be  absolutely  sovereign.  He  comes  to  the  conclusion  that  a 
paper  currency  wall  not  meet  the  above  requirements  for 
the  following  reasons :  "  That  notwithstanding  coinage  and 
the  regulation  of  money,  it  may  well  be  doubted  whether  a 
sovereign  power  over  the  coinage  necessarily  gives  the  right 
to  establish  a  currency,  and  that  any  doubt  as  to  the  legality 
of  the  exercise  of  such  an  authority  could  not  fail  to  mar 
any  system  which  human  ingenuity  could  devise."  He  ig- 
nored the  fact  that  Mr.  Webster,  in  the  argument  of 
McCullough  vs.  the  State  of  Maryland,  admitted  that  Con- 
gress had  the  sovereign  power  to  issue  treasury  notes,  and 
that  it  was  not  denied  by  Chief  Justice  Marshall.  He  seems 
to  have  had  no  comprehension  of  the  financial  truism  that 
has  since  been  announced  by  our  Supreme  Court  in  Juillard 
vs.  Greenman,  no  U.  S.  Rep.,  421,  as  follows:  — 

"  It  appears  to  us  to  follow,  as  a  logical  and  necessary 
consequence,  that  Congress  has  the  power  to  issue  obliga- 
tions of  the  United  States  in  such  form,  and  to  impress  upon 
them  such  qualities,  as  currency  for  the  purchase  of  mer- 
chandise and  the  payment  of  debts  as  accord  with  the  usage 
of  sovereign  Governments.  .  .  .  The  Governments  of  Europe, 
15 


226  The  Legal-Tender  Problem 

acting  through  the  monarch,  or  the  Legislature,  according 
to  the  distribution  of  powers  under  the  respective  constitu- 
tions, has  and  have  as  sovereign  a  power  of  issuing  paper 
money  as  of  stamping  coin." 

Under  this  decision,  and  in  accordance  with  the  science 
of  finance,  the  legal-tender  value  bestowed  by  fiat  of  Govern- 
ment is  "a  property  right  "  held  in  trust  by  the  Government ; 
and  it  is  a  financial  and  political  crime  to  give  it  to  any  spe- 
cial class,  and  force  the  people  to  purchase  it  in  order  that 
they  may  be  enabled  to  carry  on  business  and  make  a  living. 

It  is  disheartening  to  see  the  fetish  worship  for  gold  and 
silver  produce  that  degree  of  financial  infatuation  which  can 
see  so  clearly  that  it  is  legal-tender  value  conferred  upon 
the  metals  by  all  the  civilized  nations  that  secures  their  uni- 
formity and  stability  of  value,  and  can  not  comprehend  that 
the  stability  and  uniformity  of  value  is  the  resultant,  and  not 
the  active,  cause  of  the  use  of  the  metals  as  legal-tender 
money. 

It  is  incomprehensible  why  this  vast  and  powerful 
"  property  right  "  of  legal  tender  should  be  bestowed  upon 
the  owners  of  gold  and  silver,  and  they  be  protected  in  the 
enjoyments  of  the  profits  that  accrue  from  the  exercise  of 
the  privilege,  the  Government  even  refraining,  in  times  of 
deadly  peril  to  the  country,  from  infringing  upon  their 
claimed  rights  until  it  can  secure  their  permission. 

Mr.  Crawford  was  asked  by  Congress  for  suggestions 
as  to  how  mediums  of  payment,  or  legal  tenders,  could  best 
be  supplied  to  meet  the  demand ;  and  notwithstanding  the 
Government  had  outstanding  at  that  time  non-interest-bear- 
ing treasury  notes  of  small  denominations,  legal  tenders  for 
only  the  payment  of  public  dues, —  which  secured  and  main- 
tained their  use  at  their  labor  expression  of  value, —  and 
which  were  being  used  as  currency  in  preference  to  being 


Report  of  IF.  H.   Crawford  227 

surrendered  for  seven-per-cent  stock,  he  made  the  report 
against  the  issue  of  treasury  notes  in  exchange  for  the  inter- 
est-bearing debt  of  the  Government,  upon  the  gratuitous 
assumption  that  the  pubUc  stock  was  so  much  more  vahi- 
able  than  the  treasury  notes  that  no  one  would  make  the 
exchange,  and  therefore  the  voUmie  of  currency  could  not  be 
increased  by  such  a  system. 


XXI 

A  Change  in  Finance  —  President  Jackson  s  Veto 

of  the  Bank 

All  the  departments  of  the  Government  have  now  acted 
in  the  interest  of  the  gold  and  silver  owners  and  their  fiscal 
agent,  the  United  States  Bank — Congress  sold  them  the 
exercise  of  the  sovereign  power  of  the  Government  for 
$1,500,000;  the  president  approved  the  sale,  the  Supreme 
Court  protected  the  bank  from  the  attack  of  the  States,  and 
the  secretary  of  the  treasury  reported  that  no  substitute 
could  be  devised  by  human  ingenuity. 

The  resumption  of  specie  payment  under  the  Bank  Act, 
and  the  resumption  in  1820  in  England  under  th^  Peel  Act, 
after  a  suspension  of  specie  payments  for  twenty-five  years, 
forced  all  State  banks  also  to  resume  or  go  out  of  business. 
These  two  acts  forced  the  currency  of  England  and  the 
United  States  to  its  nearest  approach  to  a  pure  metallic  cur- 
rency, and  the  struggle  between  the  two  countries  for  specie 
became  intense. 

Mr.  Crawford  describes  the  result  in  the  United  States 
as  one  where  the  creditor  took  from  the  debtor  all  his  prop- 
erty without  semblance  of  merit  or  imputation  of  crime.  Sir 
Archibald  Allison  gives  the  history  of  the  result  in  Eng- 
land as  follows :  "  The  entire  circulation  of  England  fell 
from  $253,545,000  in  1818  to  $147,757,000  in  1821.  The 
effects  of  this  sudden  and  prodigious  contraction  of  the  cur- 
rency were  soon  apparent,  and  they  rendered  the  next  three 
years  a  period  of  ceaseless  distrust  and  suffering  in  the  Brit- 
228 


A  Change  in  Finance  229 

ish  Islands.  .  .  .  The  discounts  in  the  Bank  of  England  — 
which  in  18 10  had  been  $115,000,000,  and  in  18 15  not  less 
than  $103,000,000  —  sank  in  1820  to  $23,360,000,  and  in  1821 
to  $13,600,000.  The  effect  upon  prices  was  not  less  imme- 
diate and  appalling ;  the  rate  of  wages  fell  one  half." 

"  From  the  tremendous  reduction  in  the  price  of  land 
which  now  took  place,"  says  Doubleday,  "  the  estates  barely 
sold  for  as  much  as  would  pay  off  the  mortgages  ;  and  own- 
ers were  stripped  of  all,  and  made  beggars." 

It  is  of  such  a  state  of  affairs  that  Mr.  Crawford  writes : 
"  Until  the  engagements  existing  at  the  moment  of  such  a 
change  are  discharged,  and  the  price  of  labor  and  of  com- 
modities is  reduced  to  the  proportion  which  it  must  bear  to 
the  quantity  of  currency  employed  in  the  medium  of  ex- 
change, enterprise  of  every  kind  will  be  repressed,  and  misery 
and  distress  universally  prevail.  .  .  .  When  this  shall  be 
effected,  the  relations  of  society,  founded  upon  a  new  basis, 
will  be  equitable  and  just,  and  tend  to  promote  and  secure 
the  general  prosperity." 

In  order  to  secure  to  the  society  of  this  country  those 
equitable  and  just  relations  which  have  such  a  tendency  to 
promote  and  secure  the  general  prosperity,  after  the  circula- 
tion has  been  forced  to  a  pure  metallic  currency.  Congress, 
on  May  3,  1822,  passed  an  act  that  "  no  treasury  notes  shall 
be  received  in  payment  on  account  of  the  United  States,  or 
paid,  or  funded,  except  at  the  treasury  of  the  United 
States." 

These  were  the  treasury  notes  that  Judge  Mason  forced 
the  collector  of  the  port  at  Boston  to  receive,  and  which  were 
being  so  advantageously  used  by  the  people  that  they  could 
not  be  secured  by  the  capitalists  to  be  exchanged  for  the 
seven-per-ccnt  public  stock.  And  yet,  because  they  were  in 
active  and  daily  use,  competing  with  gold,  silver,  and  the 


230     ,  The  Legal-Tender  Problem 

notes  of  the  Bank  of  the  United  States,  a  subservient  Con- 
gress violated  the  terms  upon  which  they  were  issued,  and 
was  endeavoring  to  force  their  retirement. 

This  poHcy  of  financial  iniquity  was  continued  unabated 
and  unchallenged  until  1829,  when  President  Jackson,  in 
his  first  annual  message,  page  462,  sounded  the  following 
note  of  alarm :  "  The  charter  of  the  Bank  of  the  United 
States  expires  in  1836,  and  its  stockholders  will  most  prob- 
ably apply  for  a  renewal  of  their  privileges.  Both  the  con- 
stitutionality and  the  expediency  of  the  law  creating  this 
bank  are  well  questioned  by  a  large  portion  of  our  fellow 
citizens,  and  it  must  be  admitted  by  all  that  it  has  failed  in 
the  great  end  of  establishing  a  uniform  and  sound  currency. 
Under  the  circumstances,  if  such  an  institution  is  deemed 
essential  to  the  fiscal  operations  of  the  Government,  I  submit 
to  the  wisdom  of  the  Legislature  whether  a  national  one, 
founded  upon  the  credit  of  the  Government  and  its  revenues, 
might  not  be  devised  which  would  avoid  all  constitutional 
difficulties,  and  at  the  same  time  secure  all  the  advantages 
to  the  Government  and  country  that  were  expected  to  result 
from  the  present  bank." 

In  his  second  annual  message,  December  6,  1830,  page 
528,  he  writes :  "  The  importance  of  the  principles  involved 
in  the  inquiry  whether  it  will  be  proper  to  recharter  the 
Bank  of  the  United  States,  requires  that  I  should  again  call 
the  attention  of  Congress  to  the  subject.  ...  It  is  thought 
practicable  to  organize  a  Government  bank,  with  the  neces- 
sary officers,  as  a  branch  of  the  treasury  department,  based 
on  the  public  and  individual  deposits,  without  power  to  make 
loans  or  purchase  property,  which  shall  remit  the  funds  of 
the  Government,  and  the  expense  of  which  may  be  paid,  if 
thought  advisable,  by  allowing  the  officers  to  sell  bills  of 
exchange  to  private   individuals   at   a   moderate   premium. 


A   Change  in  Finance  231 

Not  being  a  corporate  body,  having  no  stockholders,  debtors, 
or  property,  and  but  few  officers,  it  would  not  be  obnoxious 
to  the  constitutional  objections  which  are  urged  against  the 
present  bank ;  and  having  no  means  to  operate  on  the  hopes, 
fears,  or  interests  of  large  masses  of  the  community,  it  would 
be  shorn  of  the  influence  which  makes  that  bank  formidable. 
These  suargestions  arc  made  not  so  much  as  a  recommenda- 
tion  as  with  a  view  of  calling  the  attention  of  Congress  to 
the  possible  modifications  of  a  system  which  can  not  continue 
to  exist  in  its  present  form  w^ithout  occasional  collisions 
with  the  local  authorities,  and  perpetual  apprehensions  and 
discontent  on  the  part  of  the  States  and  the  people." 

In  his  third  annual  message,  December  6,  183 1,  page 
558,  he  writes  :  "  Entertaining  the  opinions  heretofore  ex- 
pressed in  relation  to  the  Bank  of  the  United  States  as  at 
present  organized,  I  felt  it  my  duty  in  my  former  messages 
frankly  to  disclose  them,  in  order  that  the  attention  of  the 
Legislature  and  the  people  should  be  reasonably  directed  to 
that  important  subject." 

When  it  is  recalled  that  Congress  sold  to  this  bank  the 
exercise  of  the  sovereign  power  to  issue  money ;  that  this 
sale  was  approved  by  President  Madison,  a  member  of  the 
same  party  which  placed  Mr.  Jackson  in  the  presidential 
chair ;  that  the  Supreme  Court  of  the  United  States  decided 
that  the  grant  of  the  charter  to  the  bank  was  constitutional, 
it  is  strange  that  the  president,  in  his  first  tlire^  annual  mes- 
sages, should  have  written  as  he  did,  in  the  hope,  as  he  stated, 
"  that  it  might  be  considered  and  finally  disposed  of  in  a 
manner  best  calculated  to  promote  the  ends  of  the  Constitu- 
tion and  subserve  the  public  interest,"  if  he  had  the  slightest 
respect  for  the  act  of  Congress,  its  approval  by  the  president, 
or  the  decision  of  the  Supreme  Court. 

President  Jackson  fully  appreciated  the  wicked  influence 


232  The  Legal-Tender  Problem 

of  the  bank  owners,  the  evil  tendency  of  the  institution,  and 
the  practise  of  the  abuses  that  were  so  destructive  to  the  pros- 
perity of  the  people,  and  the  integrity  of  public  officials,  and 
he  therefore  decided  that  no  such  avaricious  and  unconsti- 
tutional scourge  should  longer  afflict  the  country.  He  appre- 
ciated in  his  own  experience  the  insolence  of  the  practical 
power  that  a  corrupt  use  of  the  institution  gives  to  its  officers 
over  those  who  are  forced  to  transact  business  and  ask 
accommodations  of  it. 

In  the  year  1832,  when  he  was  seeking  a  renomination, 
the  owners  of  the  bank  influenced  Congress,  notwithstand- 
ing his  opposition,  to  grant  them  a  renewal  of  the  charter. 
While  the  bill  was  in  his  hands  for  approval  or  rejection,  he 
was  called  upon  by  one  Nicholas  Biddle,  president  of  the 
bank,  who,  failing  in  his  attempt  to  persuade  the  president 
to  approve  the  bill,  endeavored  to  force  his  approval  by  the 
implied  threat  that,  through  the  influence  of  the  many 
branches  of  the  bank,  he  would  control  the  majority  of  the 
delegates  to  the  nominating  convention ;  and  in  view  of  this 
fact,  he,  the  president,  might  find  it  to  his  interest  to  approve 
the  bill. 

Fortunately  for  the  honor  of  the  country.  President  Jack- 
son could  not  be  cajoled,  and  under  no  circumstances  be 
dictated  to ;  and  he  answered  in  substance  as  follows :  "  Mr. 
Biddle,  I  believe  what  you  say  is  true ;  and  if  there  were  no 
other,  that  of  itself  would  be  sufficient  reason  why  I  should 
veto  the  bill.  Any  such  power  is  dangerous  to  the  integrity 
of  the  ballot  and  the  perpetuity  of  the  Government,  and 
should  be  destroyed." 

The  bill,  renewing  the  charter,  was  passed  July  4,  and 
on  July  10,  1832,  President  Jackson  sent  his  veto  to  Con- 
gress. "A  bank  of  the  United  States,"  he  says,  "  is  in  many 
respects  convenient  for  the  Government,  and  useful  to  the 


A  Change  in  Finance  233 

people.  .  .  .  Entertaining  this  opinion,  and  deeply  impressed 
with  the  belief  that  some  of  the  powers  and  privileges 
possessed  by  the  existing  banks  are  unauthorized  by  the 
Constitution,  subversive  of  the  rights  of  the  States,  and 
dangerous  to  the  liberties  of  the  people,  I  felt  it  my  duty 
at  an  early  period  of  my  administration  to  call  the  attention 
of  Congress  to  the  practicability  of  organizing  an  institu- 
tion combining  all  its  advantages  and  obviating  these 
objections. 

"  I  sincerely  regret  that  in  the  act  before  me  I  can  per- 
ceive none  of  these  modifications  of  the  bank  charter  which 
are  necessary,  in  my  opinion,  to  make  it  compatible  with 
justice,  with  sound  policy,  or  with  the  Constitution  of  our 
country.  .  .  .  The  present  bank  enjoys  an  exclusive  privilege 
of  banking  under  the  authority  of  the  General  Government, 
a  monopoly  of  its  favor  and  support,  and  as  a  necessary 
consequence,  almost  a  monopoly  of  the  foreign  and  domestic 
exchange.  The  powers,  privileges,  and  favors  bestowed 
upon  it  in  the  original  charter,  by  increasing  the  value  of 
the  stock  above  its  par  value,  operated  as  a  gratuity  of  many 
millions  to  the  stockholders.  .  .  . 

"  The  act  before  me  proposes  another  gratuity  to  the 
holders  of  the  same  stock,  and  in  many  cases  to  the  same 
men.  .  .  .  Every  monopoly  and  all  exclusive  privileges  arc 
granted  at  the  expense  of  the  public,  idiich  ought  to  receive 
a  fair  equivalent.  The  many  millions  which  this  act  pro- 
poses to  bestow  on  the  stockholders  of  the  existing  bank 
must  come  directly  or  indirectly  out  of  the  earnings  of  the 
American  j^eople.  It  is  due  them,  therefore,  if  their  Gov- 
ernment sell  monopolies  and  exclusive  privileges,  that  they 
should  at  least  exact  for  them  as  much  as  they  are  worth 
in  the  open  market.  .  .  .  The  value  of  this  present  monopoly 
is  $17,000,000.  and  this  act  proposes  to  sell  for  $3,000,000, 


234  The  Legal-Tender  Problem 

payable  in  fifteen  annual  instalments  of  $200,000  each.  If 
we  must  have  such  a  corporation,  why  should  not  the  Gov- 
ernment sell  out  the  whole  stock,  and  thus  secure  to  the 
people  the  full  market  value  of  the  privilege  granted  ?  But 
this  act  does  not  permit  competition  in  the  purchase  of  this 
monopoly.  It  seems  to  be  predicated  on  the  erroneous  idea 
that  the  present  stockholders  have  a  prescriptive  right  not 
only  to  the  favor,  but  to  the  bounty  of  the  Government. 

"  It  is  maintained  by  the  advocates  of  the  bank  that  its 
constitutionality  in  all  its  features  ought  to  be  considered 
as  settled  by  the  precedent  and  by  the  decision  of  the  Su- 
preme Court.  To  this  conclusion  I  can  not  consent.  Pre- 
cedent has  not  settled  this  matter.  .  .  .  The  original  act 
of  incorporation  enacts  among  other  things  that  no  other 
bank  shall  be  established  by  any  future  law  of  the  United 
States  during  the  continuance  of  the  corporation  hereby 
created.  This  provision  is  continued  in  force  by  the  act 
before  me  fifteen  years  from  the  third  of  March,  1836.  If 
Congress  had  the  power  to  establish  one  bank,  they  had 
the  power  to  establish  more  than  one,  if  in  their  opinion 
two  or  more  banks  had  been  necessary  to  facilitate  the  execu- 
tion of  the  powers  delegated  to  them  in  the  Constitution. 
It  was  possessed  by  one  Congress  as  well  as  another,  and 
by  all  Congresses  alike,  and  alike  at  every  session." 

The  message  states  that  the  exclusive  privileges  and 
benefits  conferred  on  the  bank  for  fifteen  years  were  for  its 
use  and  emolument,  and  not  for  the  advantage  of  the  Gov- 
ment. 

"  These  surplus  powers  for  which  the  bank  is  required 
to  pay  can  not  surely  be  necessary  to  make  it  the  fiscal 
agent  of  the  treasury.  If  they  were,  the  exaction  of  a  bonus 
would  not  be  proper.  The  Government  does  not  tax  its 
officers  and  agents  for  the  privilege  of  serving  it.  .  .  .  It 


A  Change  in  Finance  235 

is  to  be  regretted  that  the  rich  and  powerful  too  often  bend 
the  acts  of  Government  to  tlieir  selfish  purpose.  .  .  . 

"  In  the  full  enjoyment  of  the  gifts  of  Heaven  and  the 
fruits  of  superior  industry,  economy,  and  virtue,  every  man 
is  equally  entitled  to  protection  by  law ;  but  when  the  laws 
undertake  to  add  to  these  natural  and  just  advantages 
gratuities  and  exclusive  privileges,  to  make  the  rich  richer 
and  the  potent  more  powerful,  the  humble  members  of 
society, —  the  farmers,  mechanics,  and  laborers, —  who  have 
neither  the  time  nor  the  means  of  securing  like  favors  to 
themselves,  have  a  right  to  complain  of  the  injustice  of  the 
Government. 

"  There  are  no  necessary  evils  in  Government.  Its  evils 
exist  only  in  its  abuses.  Experience  should  teach  us  wis- 
dom. Most  of  the  difficulties  our  Government  now  encoun- 
ters, and  most  of  the  dangers  which  impend  over  our  Union, 
have  sprung  from  an  abandonment  of  the  legitimate  objects 
of  Government  by  our  national  Legislature,  and  the  adop- 
tion of  such  principles  as  are  embodied  in  this  act.  Many 
of  our  rich  have  not  been  content  with  equal  protection  and 
equal  benefits,  but  have  besought  us  to  make  them  richer 
by  the  acts  of  Congress.  By  attempting  to  gratify  their 
desire,  we  have,  in  the  results  of  our  legislation,  arrayed 
section  against  section,  interest  against  interest,  and  man 
against  man,  in  a  fearful  commotion  which  threatens'  to 
shake  the  foundation  of  our  Union." 

President  Jackson's  veto  was  sustained.  This  attack  of 
the  president  was  most  deadly  to  the  interests  as  well  as 
the  system  of  the  bank.  He  denied  its  expediency,  its  effi- 
ciency, and  constitutionality.  He  demonstrated  that  it  was 
neither  necessary  as  a  fiscal  agent  for  the  Government  nor 
as  an  aid  to  the  people  in  effecting  the  exchange  of  their 
products.     He  charged  that  it  was  false  in  its  pretensions, 


236  The  Legal-Tender  Problem 

that  it  was  chartered  to  accommodate  the  people  in  making 
their  exchanges ;  but  on  the  contrary  was  a  most  valuable 
and  powerful  monopoly  and  gratuity  to  a  favored  class. 
He  charged  that  it  not  only  bestowed  millions  of  the  peo- 
ple's money  on  the  few  owners  of  the  bank,  but  in  addition 
gave  them  command  of  all  foreign  and  domestic  exchange, 
by  means  of  which  they  were  enabled  to  still  further  mulct 
the  people.  He  showed  that  it  was  an  avaricious  abuse  of 
governmental  power  in  response  to  the  selfish  demands  of 
a  clique  which  claimed  the  right  to  grow  rich  by  legislation, 
not  work,  and  that  the  result  of  such  legislation  arrays 
section  against  section  in  a  commotion  which  threatens  to 
shake  the  foundations  of  the  Union. 

It  was  therefore  essential  to  the  existence  of  the  bank 
that  President  Jackson  should  be  defeated  for  renomina- 
tion.  The  president  had  courageously  stepped  between  the 
financial  wolves  and  their  prey,  the  American  people. 
Under  such  circumstances,  the  leaders  of  those  wolves 
recognize  no  code  of  morals,  and  eliminate  all  considera- 
tions of  ethics  as  well  as  of  patriotism  from  their  conduct. 
They  have  but  one  actively  asserted  principle  either  of 
morals,  religion,  virtue,  or  patriotism,  and  that  is  the  right 
to  make  a  Machiavellian  use  of  any  and  all  of  them  in  the 
fight  to  win.  This  principle  was  dominant  in  their  coun- 
cils and  actions  in  that  day ;  has  possessed  and  controlled 
them  ever  since,  and  has  been  so  successfully  practised  that 
it  is  now  the  cardinal  principle  of  the  Republican  party. 

That  love  of  money  is  the  root  of  all  evil,  as  well  as 
the  elimination  of  all  principles,  and  tends  to  justify  the 
abandon  that  humanity  willingly  practises,  has  and  can 
have  no  higher  exemplification  than  in  the  methods  used  to 
loot  the  treasuries  of  the  country  —  city,  county.  State,  and 
national.    To  such  an  extent  has  this  tendency  gone  that  all 


I 


A  Change  in  Finance  237 

the  treasuries  are  regarded  as  impersonal  and  entirely  for- 
eign to  the  interests  or  welfare  of  the  people ;  and  he  who 
may  so  desire  has  the  Christian  right  to  abstract  all  he  can 
from  the  people's  hard-earned  and  grievously  collected  tax 
money  without  fear  of  the  penitentiary. 

It  should  not  be  a  cause  of  surprise,  since  the  beneficial 
results  of  such  practises  have  finally  succeeded  in  control- 
ling the  entire  policy  of  the  Republican  party,  that  the  prop- 
erty-right followers  of  Mr.  Jefferson  succumbed  many  years 
ago. 

In  this  connection  it  is  proper  to  recall  that  the  party  of 
Jefiferson  was  known  by  the  name  "  Republican."  It  was 
as  a  member  of  this  party  that  Jackson  was  elected  president. 
Nicholas  Biddle,  the  president  of  the  bank,  commanding  the 
support  and  influence  of  all  of  the  officials  of  the  branch 
banks,  was  a  most  powerful  member  of  the  party.  During 
President  Adams's  term  of  office  the  different  political  fac- 
tions adopted  names  which  afforded  means  for  distinguish- 
ing them.  The  advocates  of  Jefferson's  principles  became 
the  "  Democratic  party ;  "  while  the  other,  which  preserved 
the  loose  constitutional  construction  of  the  Federalist  party, 
became  the  "  National  Republican,"  afterwards  called 
"  Whig  "  party.  The  approaching  success  of  the  Jackson, 
or  Democratic,  party  was  apparent.  The  power  and  influ- 
ence of  the  bank  element  was  most  formidable ;  many  Con- 
gressmen directly  owed  their  offices  to  it.  Jackson's  attitude 
toward  the  bank  provoked  discord  and  opposition  within  his 
own  party.  Through  a  show  of  the  bank's  power  it  was 
hoped  that  the  president's  ambition  for  a  second  election 
would  induce  him  to  surrender  to  the  bank's  demands.  It  was 
made  known  to  Jackson  that  every  chairman  of  the  party 
throughout  the  United  States  was  favorable  to  the  bank ; 
that  the  press,  which  was  amenable  then  as  now  to  money 


238  The  Legal-Tender  Problem 

influence,  was  also  for  the  bank;  and  that  the  great  majority 
of  delegates  to  the  nominating  convention  would  favor  the 
bank.  President  Jackson  also  knew  that  this  remarkable 
unanimity  had  been  accomplished,  as  stated  by  Mr.  Benton 
in  his  "  Thirty  Years  in  Congress,"  "by  the  expenditure  on 
the  part  of  the  bank  of  $3,000,000  in  bribing  and  subsidizing 
members  of  Congress,  newspaper  editors,  politicians,  bro- 
kers, jobbers,  and  men  of  influence  to  defeat  President  Jack- 
son and  purchase  a  recharter." 

Although  it  appeared  that  the  entire  control  of  the  party 
was  in  the  hands  of  Biddle,  President  Jackson  was  unshaken 
in  his  determination.  He  vigorously  entered  into  the  contest. 
It  was  a  struggle  to  the  death  between  the  property-rights 
faction,  as  represented  by  the  bank  element,  and  the  per- 
sonal-rights faction,  as  represented  by  President  Jackson. 
Upon  its  failure  to  dominate  President  Jackson,  the  bank 
element  lost  no  time  in  perfecting  an  alliance  with  the  Fed- 
eralists as  the  National  Republican  party. 

It  would  be  difficult  to  overstate  the  magnitude  of  the 
contest.  The  early  environments,  business  connections,  crim- 
inal amenability  to  financial  influence,  and  crass  ignorance 
of  the  cardinal  principles  of  democratic  government  then, 
as  now,  found  many  of  the  champions  and  espousers  of 
the  property-rights  faction  —  consciously  for  a  purpose  in 
many  instances,  but  often  unconsciously  —  proclaiming 
themselves  members  of  a  party  which,  in  its  pure  and  true 
expression,  represents  the  personal-rights  idea  of  govern- 
ment. In  this  contest  it  was  essential  that  the  president 
should  take  such  action  as  would  separate  "  the  sheep  from 
the  goats."  This  could  only  be  done  by  a  reorganization 
of  the  party  in  such  a  manner  as  would  make  it  in  fact,  as 
well  as  in  name,  the  representative  of  the  personal-rights 
idea  of  government.     Jackson  accomplished  this  result,  and 


A   Change  in  Finance  239 

the  new  organization,  reasserting  the  principles  of  Thomas 
Jefifcrson,  and  eliminating  the  abuses  which  had  been  en- 
grafted upon  it  by  the  treachery  of  Biddle  and  his  satellites, 
was  in  fact  a  Democratic  party,  and  as  such  it  attracted  to 
its  support  those  who  believed  in  personal-rights  principles. 
There  was  then  no  more  difference  between  the  principles 
and  policies  of  the  Federalist  and  Nicholas  Biddle  factions 
than  there  now  is  between  the  Republican  party  and  the 
gold-bug  branch  of  the  Democratic  party ;  all  are  alike  in 
that  the  former  were  then,  as  the  latter  are  now,  the  cham- 
pions of  the  property-rights  idea  as  opposed  to  the  personal- 
rights  idea  of  government. 

I'^ear  of  President  Jackson's  unyielding  hostility  caused 
the  bank  to  exert  its  utmost  power  to  accomplish  his  defeat. 
The  activity  of  "  Biddle's  Bank  "  was  similar  in  character 
to  the  zeal  and  efforts  at  the  present  time  of  the  banks,  trusts, 
and  combines  to  prevent  the  establishment  of  a  genuine 
democracy.  The  principal  difference  between  what  was 
done  in  Jackson's  time  and  what  is  done  to-day  is  that 
Biddle's  bank  openly  endeavored  to  maintain  its  power,  while 
the  same  character  of  institution  at  the  present  time  accom- 
plishes its  ends  by  the  most  secret  and  treacherous  methods. 
In  that  day  the  Federalist  party  and  the  Biddle  branch  com- 
bined as  the  National  Republican  party,  and  attempted  to 
secure  the  election  of  Henry  Clay  to  the  presidency.  In  this 
day  they  remain  apart,  and  have  their  Clevelands,  Hills,  Bel- 
monts,  Whitneys,  and  other  tools  of  the  money  power,  pro- 
fessed followers  of  Jefferson  and  Jackson,  struggling  to  con- 
trol Democratic  nominating  conventions,  in  the  hope  and 
for  the  purpose  of  foisting  upon  the  personal-rights  party 
some  agent  of  the  property-rights  party  as  president,  and 
committing  the  Democratic  party  to  the  advocacy  of  the 
principles  of  ,the  property-rights  faction. 


XXII 

The  Issuance  of  Bills  of  Credit  by  the  State  of 

Missouri 

The  United  States  Bank  faction,  assuming  that  it  would 
secure  a  renewal  of  its  charter,  did  not  propose  that  there 
should  be  any  infringement  of  its  claimed  rights  to  the 
exclusive  issue  of  all  the  credit  money,  and  therefore  it 
caused  suit  to  be  instituted,  challenging  the  right  of  the 
State  of  Missouri  to  exercise  said  privilege. —  Craig  vs.  The 
State  of  Missouri,  4  Peters,  10. 

It  appears  that  on  June  27,  1821,  two  years  after  the 
Supreme  Court  decided  that  the  act  of  Congress  granting 
a  charter  to  a  bank  and  giving  it  the  right  to  issue  notes, 
was  constitutional,  the  Legislature  of  the  State  of  Missouri 
presumed  from  this,  and  the  fact  that  the  States  were 
authorizing  the  banks  chartered  by  them  to  issue  notes, 
that  it  could  also  authorize  the  issue  of  paper  money  with- 
out the  aid  of  a  bank. 

This  was  done  by  an  act  of  the  Legislature  passed  June 
27,  1821,  to  establish  "loan  offices."  By  means  of  these 
offices,  the  State  issued  to  its  citizens,  as  a  loan,  in  sums 
less  than  $200  to  the  individual  applicant,  certificates  in 
denominations  from  fifty  cents  to  ten  dollars.  The  individ- 
ual who  received  the  certificates  secured  the  payment  of  the 
same  by  executing  his  note,  bearing  two  per  cent  interest, 
with  personal  property  as  collateral  security. 

One  Craig  and  others,  who  had  borrowed  and  used  the 
certificates,  refused  to  pay  their  note,  on  the  ground  that  it 
240 


Missouri  Bills  of  Credit  241 

was  a  void  contract,  because  unlawful  and  violative  of  the 
provision  of  the  Constitution  that  no  State  shall  emit  a 
bill  of  credit. 

In  1823  suit  was  instituted  in  the  State  court  against 
Craig  and  others  upon  the  liote.  In  November,  1824,  judg- 
ment was  rendered  in  favor  of  the  State  for  the  sum  of 
$237.79.  Upon  appeal  to  the  Supreme  Court  of  the  State, 
the  judgment  was  affirmed.  The  defendants  prosecuted  a 
writ  of  error  to  the  Supreme  Court  of  the  United  States, 
and  in  1830  Chief  Justice  Marshall  delivered  the  opinion 
of  the  court  reversing  the  decision  of  the  State  court,  and 
holding  that  the  note  was  void  because  of  the  illegality  of 
the  consideration,  the  certificates  having  been  issued  in  vio- 
lation of  the  Constitution.    , 

The  smallness  of  the  amount  involved  did  not  escape 
the  notice  of  Jackson  and  Benton,  who  realized  that,  insig- 
nificant as  the  case  appeared  in  the  amount,  it  involved  a 
serious  financial  principle.  Senator  Benton  therefore 
decided  to  give  the  weight  of  his  influence  to  the  support 
of  the  State  of  his  adoption  in  its  endeavor  to  free  its  citi- 
zens from  dependence  on  the  capitalists  of  the  East.  In  his 
argument  before  the  Supreme  Court,  he  said :  — 

"  The  act  of  the  Legislature  establishing  loan  offices  had 
no  purpose  to  accomplish  by  which  injury  could  be  sustained 
by  any  one.  The  deficiency  of  currency  in  the  State,  and 
the  expense  which  attended  the  new  organization,  made  the 
arrangement  proposed  and  authorized  by  the  act  convenient 
and  beneficial  to  the  citizens  of  the  State.  The  State,  when  it 
directed  that  the  certificates  should  be  issued,  made  suffi- 
cient and  certain  provision  for  their  redemption  and  pay- 
ment. The  permanent  continuance  of  the  circulation  of 
the  certificates  was  prohibited  by  an  effective  regulation 
in  the  bill.  The  twenty-fourth  section  of  the  law  provided 
16 


242  The  Legal-Tender  Problem 

for  the  gradual  extinction  of  the  certificates  as  they  should 
come  in ;  and  the  power  was  given  to  the  governor  by  the 
twenty-ninth  section  of  the  law  to  negotiate  a  loan  of  gold 
and  silver  for  their  redemption.  Thus  the  certificates  were 
issued  upon  ample  means  for  their  discharge,  and  their  dis- 
charge to  their  full  value  must  soon  take  place.  These  cer- 
tificates were  not  made  a  legal  tender.  They  were  not 
directed  to  pass  as  money;  and  zvJiilc  there  is  no  obligation 
imposed  by  the  lazv  that  tliey  shall  be  taken  by  the  citizens 
of  the  State,  it  declares  that  the  State  shall  take  them,  as 
has  heretofore  been  set  forth.  When  examined,  these  cer- 
tificates will  be  found  to  be  nothing  more  than  evidence  of 
loans  made  by  the  State  to  its  citizens  and  for  the  payment 
of  which  it  has  received  specific  and  available  pledges." 

It  has  heretofore  been  stated  that  the  Massachusetts 
financiers  acquired  a  financial  supremacy  by  the  use  of  paper 
money,  and  that  they  determined  to  retain  this  advantage 
by  so  framing  the  Constitution  that  no  State  would  ever 
have  the  right  to  issue  paper  mone}^  when  needed  to  relieve 
the  distress  of  the  people,  however  severe  it  might  be.  To 
this  end  they  succeeded  in  having  the  Constitution  so  framed 
that  only  gold  and  silver  should  have  legal-tender  value,  so 
that  whenever  the  people  needed  money  to  develop  the 
country  and  make  a  living,  they  might  secure  it,  or  its 
substitute,  only  by  loans  or  purchase  from  Eastern  capital- 
ists, on  such  conditions  as  they  might  see  fit  to  exact. 

In  this  view  it  is  evident  that  Mr.  Benton  was  mistaken 
when  he  said  that  "  in  the  establishment  of  loan  offices 
there  was  no  purpose  to  accomplish  by  which  injury  could 
be  sustained  by  any  one,"  for  he  overlooked  the  fact  that 
though  the  State  of  Missouri  was  moved  to  its  action  by 
the  tenderest  consideration  for  the  financial  distress  of  its 
citizens,  it  was  taking  away  from  the  Eastern  capitalists, 


Missouri  Bills  of  Credit  243 

in  the  amount  of  certificates  issued,  the  exchisive  right 
which  they  claimed  was  secured  by  the  terms  of  the  Con- 
stitution to  issue  fhe  money  of  the  country. 

It  was  the  protection  of  this  claimed  right  (regardless 
of  the  interest  of  the  people),  against  any  infringements  by 
the  States,  that  was  demanded  of  the  Supreme  Court  by 
the  Eastern  capitalists.  The  lawsuit,  therefore,  resolved 
itself  into  the  simple  question,  What  is  a  bill  of  credit?  No 
one,  it  appears,  knew  what  the  term  "  bills  of  credit "  meant. 

Chief  Justice  Marshall,  in  his  opinion,  stated  that  "  in 
its  enlarged,  and  perhaps  in  its  literal  sense,  the  term  '  bill 
of  credit '  may  comprehend  any  instrument  by  which  the 
State  engages  to  pay  money  at  a  future  day ;  thus  including 
a  certificate  given  for  money  borrowed."  This  definition, 
it  will  be  seen,  includes  interest-bearing  bonds,  the  manna 
of  the  capitalists,  as  well  as  currency,  the  bread  of  the  peo- 
ple, and  consequently  is  too  general  for  acceptance. 

The  chief  justice  proceeded  to  ask  the  question:  "What 
did  the  Constitution  mean  to  forbid  ?  "  He  assumed  cor- 
rectly that  the  Constitution,  as  framed  in  this  particular,  took 
the  hue  and  complexion  of  the  sinister  motives  of  the  Alassa- 
chusetts  financiers  who  secured  the  inhibition,  and  meant 
to  forbid  the  State  of  Missouri,  or  any  other  State,  from, 
in  any  manner  that  infringed  their  unnatural  right,  grant- 
ing relief  to  its  citi/:ens  when  suffering  from  a  scarcity  of 
money. 

He  therefore  originated  and  applied  a  very  simple  rule 
to  ascertain  the  definition  of  the  term  "  a  bill  of  credit  "  as 
follows :  He  was  particular  to  ascertain  exactly  what  the 
Legislature  of  the  State  of  Missouri  had  done  to  infringe 
the  right  claimed  by  the  Eastern  financiers,  and  then  so 
framed  the  definition  as  to  meet  the  facts  and  aflford  them 
full  and  complete  protection.  He  stated  that  "the  certificates, 


244  The  Legal-Tender  Problem 

signed  by  the  auditor  and  treasurer  of  the  State,  are  to  be 
issued  b\'  those  officers,  to  the  amount  of  $200,000,  of  de- 
nominations not  exceeding  ten  dollars,  nor  less  than  fifty 
cents.  The  paper  purports  on  its  face  to  be  receivable  at 
the  treasury,  or  at  any  loan  office  in  the  State  of  Missouri, 
in  discharge  of  the  taxes  or  debts  due  the  State.  .  .  . 

"  It  seems  impossible,"  he  stated,  "  to  doubt  the  inten- 
tion of  the  Legislature  in  passing  this  act,  or  to  mistake  the 
character  of  these  certificates  or  the  office  they  were  to  per- 
form. The  denominations  of  the  bills,  from  ten  dollars  to 
fifty  cents,  fitted  them  for  the  purpose  of  ordinary  .circula- 
tion ;  and  their  reception  in  payment  of  taxes,  and  debts  to 
the  Government  and  corporations,  and  of  salaries  and  fees, 
would  give  them  currency.  They  were  to  be  put  in  circu- 
lation;  that  is,  emitted  by  the  Government.  To  emit  bills 
of  credit,"  he  finally  decides,  "  conveys  to  the  mind  the 
idea  of  issuing  paper  intended  to  circulate  through  the  com- 
munity for  its  ordinary  purposes,  as  money,  which  paper 
is  redeemable  at  a  future  day." 

This  definition  of  a  bill  of  credit  bears  internal  evidence 
that  it  was  so  framed  more  to  fit  the  facts  of  the  case  before 
the  court,  and  protect  the  Eastern  financiers,  than  from  any 
comprehensive  and  just  examination  of  the  derivation, 
growth,  and  use  of  the  term. 

According  to  Mr.  Benton's  statement  and  the  admitted 
facts,  the  act  was  a  temporary,  inoffensive,  paternal  effort 
upon  the  part  of  the  State  to  afford  relief  to  its  citizens  for 
the  short  time  the  Eastern  capitalists  were  unable  to  furnish 
money,  or  were  unwilling  to  risk  it  among  the  people ;  and 
it  exhibited  a  high  degree  of  subserviency  to  that  element 
in  the  provision  that  the  State  would  secure  enough  of  their 
gold  and  silver  to  redeem  the  certificates  if  they  were  not 
taken  up  in  payment  of  public  dues  or  paid  by  the  borrowers. 


Missouri  Bills  of  Credit  245 

Some  fear,  possibly,  that  the  paper  emissions  would  be 
so  efficient  as  to  lead  to  permanency,  larger  issues,  and 
destroy  the  constitutional  scheme  of  the  Massachusetts  finan- 
ciers, demanded  the  nipping  of  all  such  experiments  in  the 
bud;  and  the  property-rights  members  of  the  court  aggra- 
vated the  distress  of  the  people  of  the  State  of  Missouri 
by  destroying  the  value  of  the  $200,000  worth  of  certificates, 
and  consequently  reducing  their  mediums  of  payment  to  that 
extent. 

The  court  comprised  seven  judges.  Chief  Justice  Mar- 
shall and  three  others  gave  the  majority  opinion;  Justice 
McLean  and  two  others  dissented. 

The  definition  of  "  bills  of  credit  "  given  above  is  the 
definition  of  the  Bank  of  the  United  States  faction.  It  will 
be  seen  in  subsequent  pages  that  the  State-bank  faction 
secured  a  dififerent  definition  of  ''  bills  of  credit,"  made  in 
accordance  with  the  rule  established ;  viz.,  to  fit  the  facts  of 
the  case  and  subserve  the  interests  of  the  party  in  power. 


XXIII 

The  Death  of  the  Second  Bank  of  the  United 

States 

President  Jackson  did  not  cease  his  warfare  against 
the  bank.  On  September  i8,  1833,  following  his  second 
inauguration,  he  read  to  his  cabinet  his  reasons  for  author- 
izing the  secretary  of  the  treasury  to  remove  the  Government 
deposits  from  the  Bank  of  the  United  States  to  the  State 
banks,  and  named  the  ensuing  October  i,  1833,  as  the  day 
the  removals  were  to  commence. 

Among  other  things  he  said :  "Although  the  charter  was 
approaching  its  termination,  and  the  bank  was  aware  that 
it  was  the  intention  of  the  Government  to  use  the  public 
deposit  as  fast  as  it  accrued  in  the  payment  of  the  public 
debt,  yet  did  it  extend  its  loans  from  January,  1831,  to  May, 
1832,  from  $42,402,304.24  to  $70,428,070.72,  being  an  in- 
crease of  $28,025,766.48  in  sixteen  months.  It  is  confi- 
dently believed  that  the  leading  object  of  this  immense 
extension  of  its  loans  was  to  bring  as  large  a  portion  of 
the  people  as  possible  under  its  power  and  influence,  and 
it  has  been  disclosed  that  some  of  the  largest  sums  were 
granted  on  very  unusual  terms  to  the  conductors  of  the 
public  press.  .  .  .  Can  it  now  be  said  that  the  question  of  a 
re-charter  of  the  bank  was  not  decided  at  the  election  which 
ensued. 

"  Had  the  veto  been  equivocal,  or  had  it  not  covered  the 
whole  ground ;  if  it  had  merely  taken  exception  to  the  details 
of  the  bill  or  to  the  time  of  its  passage;  if  it  had  not  met 
246 


Death  of  Second  Bank  of  the  U.  S.        247 

the  whole  ground  of  unconstitutionality,  then  there  might 
have  been  some  plausibility  for  the  allegation  that  the  ques- 
tion was  not  decided  by  the  people.  It  was  to  compel  the 
president  to  take  his  stand  that  the  question  was  brought 
forward  at  that  particular  time.  He  met  the  challenge, 
willingly  took  the  position  into  which  his  adversaries 
sought  to  force  him,  and  frankly  declared  his  unalterable 
opposition  to  the  bank  as  being  both  unconstitutional  and 
inexpedient.  .  .  . 

"  It  has  been  alleged  by  some,  as  an  objection  to  the 
removal  of  deposits,  that  the  bank  has  the  power,  and  in 
that  event  will  have  the  disposition,  to  destroy  the  State 
banks  employed  by  the  Government,  and  bring  distress  upon 
the  country.  ...  If  the  president  believed  the  bank  pos- 
sessed all  the  power  which  has  been  attributed  to  it,  his 
determination  would  only  be  rendered  the  more  inflexible. 
If,  indeed,  this  corporation  now  holds  in  its  hands  the  hap- 
piness and  prosperity  of  the  American  people,  it  is  high  time 
to  take  the  alarm." 

Mr.  Duane,  the  secretary  of  the  treasury,  refused  to  act. 
He  was  removed,  and  Mr.  Taney  appointed. 

The  Bank  of  the  United  States,  and  its  branches,  was 
forced  into  liquidation,  and  by  February  4,  1814,  Nick 
Biddle's  bank  at  Philadelphia  was  closed,  as  were  nearly  all 
the  branches  of  the  South  and  West. 

To  relieve  the  distress  caused  by  the  change  from  national 
to  State  banks.  Congress,  in  June,  1834,  made  the  silver  dol- 
lar of  Mexico,  Peru,  Brazil,  and  Central  America  current 
money  for  the  payment  of  all  debts  and  demands  in  the 
United  States.  In  this  month  the  Government  paid  all  its 
debt. 


XXIV 

The  Change  of  the  Ratio  from  I S  to  I  to  l6  to  I 

The  enactment  by  Congress,  in  1792,  that  the  ratio 
between  silver  and  gold  should  be  15  to  i  when  it  should 
have  been  i^yi  to  i,  made  the  silver  coins  cheaper  than 
the  gold  coins.  This  caused  all  payments  to  be  made  in 
the  cheaper  money,  silver,  and  gold  was  shipped  to  Europe 
to  secure  the  higher  value  given  it  there. 

It  is  evident  that  silver,  in  its  practical  use,  was  supply- 
ing the  demand  for  a  local  currency,  and  would,  in  the 
course  of  time,  have  furnished  a  full  supply  to  meet  the 
local  demand  for  mediums  of  payment,  and  basic  money. 

Silver,  at  15  to  i,  was  playing  the  same  role  to  gold 
that  the  issue  of  paper  always  plays  to  gold  and  silver ;  viz., 
furnishes  a  local  legal-tender  money  to  the  people,  thereby 
enabling  them  to  get  profitable  prices  for  all  products.  As 
long  as  such  a  condition  existed,  the  people  prospered ;  for 
with  an  increasing  supply  of  metallic  money,  the  ability  of 
the  many  State  banks  to  redeem  their  notes  would  not  be 
brought  in  question. 

With  the  creditors  and  owners  of  the  interest-bearing 
securities,  however  it  may  have  been  with  the  debtors  and 
producers,  it  was  different.  They  objected,  because  all 
debts  and  interest  were  paid  in  the  cheap  silver  coins  and 
the  State-bank  notes  that  were  issued  upon  the  increasing 
base  of  silver.  There  was  no  injustice  in  this  to  the  credit- 
ors, for  the  reason  that  the  sums  to  be  paid  called  for  dol- 
lars, and  the  value  of  the  dollar,  as  it  was  used  in  creating 
248 


The  Change  from  Ij  to  I  to  lO  to  I       249 

the  oblig'ation,  was  371M  grains  of  pure  silver;  and  to  pay 
any  obligation  in  the  exact  value  that  was  meant  when  it 
was  made,  is  always  fair  in  business  and  just  in  morals. 

The  injustice  of  the  transaction  consists  in  legislation 
that  forces  the  debtor  to  pay  in  coins  that  are  of  a  value 
in  excess  of  the  value  the  "  word  "  dollar  meant  when  the 
contract  was  made,  or  allows  him  to  pay  in  coins  that  are 
of  a  less  value  than  the  "  word  "  dollar  implied  when  it  was 
used  in  making  the  contract. 

There  is  a  middle  ground,  it  is  claimed,  upon  which 
both  the  debtor  and  the  creditor  can  stand,  that  is  fair  and 
just;  and  that  is  to  make  the  silver  and  the  gold  in  the  coins 
of  such  proportion  that  the  silver  coins  and  gold  coins  will 
be  equal  in  value,  and  then,  so  long  as  that  condition  exists, 
it  will  not  matter  in  which  the  debtor  pays.  While  this  is 
true  in  theory  and  correct  in  morals,  it  is  impracticable, 
for  the  reason  that  no  human  power,  individual  nor  gov- 
ernmental, can  control  the  output  of  the  metals,  and  a  ratio 
correctly  established  one  year  may  be  disturbed  in  a  few 
years.  This  disturbance,  so  often  and  so  radically  brought 
about  by  the  arbitrariness  of  mother  earth  in  giving  up  to 
man's  incessant  quest  the  precious  metals,  is  assisted  by 
other  causes  equally  uncontrollable. 

And  yet  it  is  the  impossible  that  the  creditors  and  holders 
of  interest-bearing  securities  are  always  striving  after,  and 
their  influence  has  been  such  that  statutes  abound  with  the 
avaricious  and  futile  attempts ;  and  reports  of  Parliament, 
Congresses,  and  International  Monetary  Conferences  are  full 
of  jargon,  denominated  scientific  discussions  of  the  causes 
and  remedies  for  the  evils  growing  out  of  such  legislation. 

This  country  was  guilty  of  an  act  of  just  such  folly  at 
the  instigation  of  the  creditors,  and  the  owners  of  interest- 
bearing  securities,  in  the  act  passed  June  28.   1834.     This 


250  The  Legal-Tender  Problem 

act  changed  the  ratio  between  silver  and  gold  from  15  to  i 
to  16  to  I,  and  the  standard  fineness  of  gold  from  11/12 
to  9/10.  This  made  25.8  grains  of  gold  9/10  fine,  instead 
of  2^  grains  11/12  fine,  the  equivalent  in  value  of  371 /i. 
grains  of  pure  silver.  Another  act  was  passed  on  the  same 
day  changing  the  value  of  foreign  gold  coins  to  conform  to 
the  first  act. 

The  effect  of  this  legislation  was  to  make  the  gold  in 
the  gold  coins  of  less  value  than  the  silver  in  the  silver  coins, 
and  consequently  the  gold  coins  became  the  money  of  pay- 
ment in  this  country.  Silver,  therefore,  went  to  Europe, 
where  at  the  ratio  of  155^  to  i  it  received  a  higher  value. 

At  first  consideration  it  would  appear  that  this  change 
was  in  the  interest  of  the  debtor,  because  the  gold  coins 
being  now  cheaper  than  the  silver  coins,  he  would  be  enabled 
to  pay  his  debts  with  less  value  than  when  he  contracted  to 
pay  in  dollars  of  the  value  of  371^4  grains  of  pure  silver. 

In  theory  only  was  this  true.  In  practise  it  w^as  just  the 
reverse,  and  to  the  advantage  of  the  creditors,  for  the  fol- 
lowing reasons :  when  silver  at  1 5  to  i  in  this  country  and 
15/^  to  I  in  Europe,  was  a  legal  tender,  it  is  evident  that  the 
silver  coined  in  this  country  gained  the  value  of  one-half 
pound  of  silver  over  gold  in  every  pound  of  gold  coined 
here.  Inasmuch  as  the  law  of  legal  tender  controls,  the 
silver  coins  in  this  country  were  equal  in  value  to  the  gold 
coins,  and  the  only  way  for  the  owners  of  gold  to  escape 
this  loss  was  to  carry  their  gold  to  Europe.  Therefore  the 
gold  of  this  country  was  used  solely  to  pay  for  foreign  goods 
or  to  purchase  foreign  silver  to  be  brought  here,  and  increase 
the  volume  of  the  basic  money. 

But  when  the  conditions  were  reversed  by  the  change 
of  the  ratio  to  16  to  i,  and  the  metal  in  the  gold  coins,  of 
less  value  than  the  metal  in  the  silver  coins,  was,  by  the  law 


The  Change  from  I ^  to  I  to  1 6  to  I       251 

of  legal  tender,  made  equal  with  the  silver  coins  as  mediums 
of  payment,  the  gold  coins  became  the  local  and  basic  cur- 
rency of  this  country,  and  the  owners  of  silver  did  as  the 
owners  of  gold  had  done  —  carried  it  to  Europe,  in  order 
that  they  might  secure  its  full  value.  Therefore  silver  was 
used  to  pay  for  foreign  goods  and  to  purchase  foreign  gold, 
but  if  not  so  used  there  was  sufficient  inducement  to  ship  it 
to  Europe  for  coinage  at  i5/<2,  as  against  16  to  i  in  this 
country. 

Though  silver  was  fast  leaving  this  country,  and  even- 
tually all  of  it  would  take  its  departure,  the  value  of  silver 
in  Asia  was  higher  than  in  Europe,  and  it  was  being  ex- 
ported to  the  Orient.  The  European  demand  for  gold 
caused  a  contraction  of  the  volume  of  metallic  money  in 
this  country.  This  scarcity  of  gold  was  intensified  from  the 
fact  that  England  had  been  on  the  gold  base  since  18 16, 
which  it  was  struggling  to  maintain.  There  was  not  enough 
available  gold  to  supply  both  England  and  this  country,  and 
in  their  struggle  one  or  both  had  to  go  under.  This  coun- 
try, as  will  be  shown  presently,  went  under ;  and  England 
would  also  have  succumbed  had  not  France  extended  a 
helping  hand  to  the  Bank  of  England,  and  saved  it  from  the 
catastrophe  that  overtook  the  banks  of  this  country. 

This  scarcity,  and  the  struggle  for  the  basic  money  of 
the  country,  was  premeditatedly  brought  about,  and  had  the 
effect  that  was  intended  by  those  who  influenced  Congress 
to  change  the  basic  money  from  silver  to  gold  by  the  change 
of  the  ratio.  Such  legislation  has  the  efifect  of  enhancing 
the  value  of  metallic  money  in  use,  decreasing  the  price 
of  products  and  labor,  and  curtailing  the  operations  of  the 
wholesale  business  of  the  country,  by  jeopardizing  or  de- 
stroying all  the  credit  money  that  is  claimed  to  be  redeem- 
able in  specie. 


2  52  The  Legal-Tender  Problem 

That  these  results  had  not  occurred  was  because  there 
were  eight  hundred  State  banks  that  were  being  unwisely 
sustained  by  Congress  in  the  act  of  June  23,  1836.  This  act 
provided  that  the  deposits  of  the  United  States  should  be 
made  in  State  banks,  and  that  said  banks  should  do  and 
perform  for  the  treasury  all  that  the  Bank  of  the  United 
States  had  done  and  performed.  The  banks  obligated  them- 
selves to  pay  coin  at  all  times,  and  to  pay  the  Government 
two  per  cent  interest  for  certain  deposits. 

President  Jackson,  in  his  Eighth  Annual  Message,  Vol. 
3,  page  241,  stated  that  "  the  Government  had  without  neces- 
sity received  from  the  people  a  large  surplus,  which,  instead 
of  being  employed  as  heretofore  and  returned  to  them  by 
means  of  public  expenditure,  was  deposited  with  sundry 
banks. '  The  banks  proceeded  to  make  loans  upon  this  sur- 
plus, and  thus  converted  it  into  banking  capital ;  and  in  this 
manner  it  has  tended  to  multiply  bank  charters,  and  has 
had  a  great  agency  in  producing  a  spirit  of  wild  specula- 
tion. .  .  . 

"  The  banks  were  extending  .  .  .  their  issues  so  largely 
as  to  alarm  considerate  men,  and  render  it  doubtful  whether 
those  bank  credits,  if  permitted  to  accumulate,  would  ulti- 
mately be  of  the  least  value  to  the  Government. 

"  The  spirit  of  expansion  and  speculation  was  not  con- 
fined to  the  deposit  banks,  but  pervaded  the  whole  multitude 
of  banks  throughout  the  Union,  and  was  giving  rise  to 
new  institutions  to  aggravate  the  evil.  The  safety  of  the 
public  funds,  and  the  interest  of  the  people  generally,  re- 
quired that  these  operations  should  be  checked.  .  .  .  Under 
this  view  of  my  duty  I  directed  the  issuing  of  the  order  .  .  . 
requiring  payment  for  the  public  lands  sold  to  be  made  in 
specie." 

This   constituted   a   most   peculiar  condition   of   affairs. 


The  Change  from  /J  to  I  to  1 6  to  I       253 

The  owners  of  gold  had  sufficient  influence  with  Congress 
to  change  the  dollars  of  payment  and  basic  money  from  sil- 
ver to  gold  by  the  change  to  16  to  i.  The  State-bank  fac- 
tion thereupon  had  sufficient  influence  with  this  same  Con- 
gress to  induce  it  to  authorize  the  deposit  of  all  the  public 
money  in  the  State  banks.  These  deposits  encouraged  the 
officials  to  extend  and  increase  the  issues  of  the  banks  at  a 
time  when  the  metallic  money  of  the  country,  in  which  these 
bank  credits  were  redeemable,  was  decreasing. 

This  suicidal  conduct  continued  until  the  president  felt 
called  upon,  as  he  stated,  to  check  the  additional  issues  by 
directing  that  the  public  lands  should  be  sold  for  specie 
only.  This  action  of  the  president,  virtually  discrediting 
and  calling  public  attention  to  his  mistrust  of  the  notes  of 
the  banks  in  which  the  Government  had  deposited  $40,000,- 
000,  hastened  the  suspension  of  specie  payments  by  all  the 
banks,  jeopardized  the  Government  deposits,  and  destroyed 
the  efficiency  of  the  circulating  currency  of  the  country. 

On  January  13,  1837,  Congress  changed  the  alloy  in  the 
silver  coins,  making  the  standard  silver  dollar  41 2^/2  instead 
of  416  grains,  and  all  subdivisions  in  proportion. 


XXV 

President  Jackson's  Farewell  Address 

In  his  farewell  address,  page  305,  the  president,  with 
an  intense  appreciation  of  the  danger  to  the  interests  of  the 
country  from  banking  institutions,  as  hanks  of  issue,  writes 
as  follows:  — 

"  It  is  one  of  the  serious  evils  of  our  present  system 
of  banking  that  it  enables  one  class  of  society,  and  that  by 
no  means  a  numerous  one,  by  its  control  over  the  currency, 
to  act  injuriously  upon  the  interests  of  all  the  others,  and 
to  exercise  more  than  its  just  proportion  of  influence  in 
political  affairs.  The  agricultural,  the  mechanical,  and  the 
laboring  classes  have  little  or  no  share  in  the  direction  of 
the  great  moneyed  corporations,  and  from  their  habits  and 
the  nature  of  their  pursuits  they  are  incapable  of  forming 
extensive  combinations  to  act  zvith  united  force.  .  .  .  The 
planter,  the  farmer,  the  mechanic,  and  the  laborer  all  know 
that  their  success  depends  upon  their  own  industry  and 
economy,  and  that  they  must  not  expect  to  become  suddenly 
rich  by  the  fruits  of  their  toil.  .  .  . 

"  But  with  overwhelming  numbers  and  wealth  on  their 
side,  they  are  in  constant  danger  of  losing  their  fair  influence 
in  the  Government,  and  with  difficulty  maintain  their  just 
rights  against  the  incessant  efforts  daily  made  to  encroach 
upon  them.  The  mischief  springs  from  the  power  which 
the  moneyed  interest  derives  from  a  paper  currency  which 
they  are  able  to  control  —  from  the  multitude  of  corpora- 
tions with  exclusive  privileges  which  they  have  succeeded 

254 


Jackson's  Farewell  Address  255 

in  obtaining  in  different  States,  and  which  are  employed  alto- 
gether for  their  benefit ;  and  unless  you  become  more  watch- 
ful in  your  States,  and  check  this  spirit  of  monopoly  and 
thirst  for  exclusive  privileges,  you  will  in  the  end  find  that 
the  most  important  powers  of  Government  have  been  given 
or  bartered  away,  and  the  control  over  your  dearest  inter- 
ests has  passed  into  the  hands  of  these  corporations. 

"  The  paper-money  system  and  its  natural  associations, 
monopoly  and  exclusive  privileges,  have  already  struck 
their  roots  too  deep  in  the  soil,  and  it  will  require  all  your 
efifort  to  check  its  further  growth  and  to  extirpate  the  evil. 
The  men  who  profit  by  the  abuses  and  desire  to  perpetuate 
them  will  continue  to  besiege  the  halls  of  legislation  in  the 
General  Government  as  well  as  in  the  States,  and  will  seek 
by  every  artifice  to  mislead  and  deceive  the  public  servants." 

And  yet  unwittingly  and  unconsciously  he  approved  the 
act  of  Congress  which  changed  the  ratio  to  16  to  i,  and 
which  in  eflfect  changed  the  basic  money  in  this  country 
from  the  plentiful  and  increasing  silver  dollars  to  the  scarce 
and  decreasing  coins  of  gold  ;  not  only  that,  but  unwittinglv 
and  unknowing  of  its  effect,  he  approved  the  act  authorizing 
the  deposit  of  Government  money  in  the  State  banks,  which 
encouraged  them  to  issue  additional  notes,  when  steps  should 
have  been  taken  to  decrease  the  bank-issues  in  the  proportion 
the  basic  money  was  being  decreased  by  the  change  from 
silver  to  gold. 


XXVI 

President  Van  Burens  Administration,  Its  Hos- 
tility to  Treasury  Notes  and  Bank-Notes, 
and  the  Suspension  of  the  Banks. 

On  March  4,  1837,  President  Jackson  was  succeeded 
by  Martin  Van  Buren,  who,  in  May  of  that  year,  was  called 
upon  to  meet  the  effect  of  the  change  of  the  ratio, —  viz., 
the  suspension  of  specie  payments  by  the  banks, —  and  the 
consequent  contraction  of  the  volume  of  basic  money  to 
gold  alone. 

As  the  contraction  of  the  metallic  base  of  the  money 
of  the  country  increased  the  distrust  of  the  bank-notes, 
hastened,  it  is  admitted,  by  the  action  of  President  Jackson 
in  refusing  anything  but  specie  for  the  payment  of  the  pub- 
lic lands,  the  distress  became  so  intense  that  a  meeting  was 
held  in  New  York  in  March  to  devise  a  plan  of  relief.  Mr. 
Webster  addressed  the  meeting,  and  ascribed  the  distress 
to  the  interference  of  the  Government  with  the  currency, 
and  to  the  order  that  public  lands  be  paid  for  in  specie  only. 

Mr.  Webster  must  not  have  explained  the  matter  very 
fully,  for  the  action  of  the  meeting  was  to  send  a  committee 
to  Washington,  asking  only  for  the  rescinding  of  the  order 
in  reference  to  public  lands,  when  the  committee  should  also 
have  been  instructed  to  demand  a  repeal  of  the  law  that  the 
money  of  the  Government  be  deposited  with  State  banks, 
and  that  the  ratio  between  gold  and  silver  should  be  changed 
to  153/2  to  I,  as  it  was  in  Europe. 
256 


Van  Bitren's  Administration  257 

The  president  was  not  responsive  to  the  request  of  the 
committee,  and  on  May  10  following  all  the  banks  suspended. 
On  the  15th  of  the  month  the  president  called  a  session  of 
Congress  for  the  first  Monday  in  the  following  September. 
In  his  special  message,  after  reciting  the  reasons  for  his 
call,  he  stated  that  "  during  the  early  stages  of  the  revulsion 
through  which  we  have  just  passed,  much  acrimonious  dis- 
cussion arose,  and  great  diversity  of  opinion  existed  as  to 
the  real  cause." 

He  repels  and  resents  the  accusation  that  the  suspension 
was  due  to  the  interference  of  the  Government  with  the  cur- 
rency, and  the  order  that  the  public  lands  must  be  paid  for 
in  specie ;  but  claimed  that  "  it  was  solely  due  to  the  unwise 
issue  of  too  many  notes  by  the  State  banks  and  the  wild 
spirit  of  speculation  engendered  thereby." 

It  is  immaterial  whether  the  efifect  of  the  change  of  the 
ratio  exaggerated  the  evils  that  are  ever  the  attendants  of 
the* false  system  of  State-bank  issues,  or  whether  the  State- 
bank  system  of  issuing  a  circulating  currency  was  exag- 
gerated by  the  Government  deposits,  but  it  is  evident  that 
the  two  combined,  in  their  practical  operation,  produced  the 
panic   which  afflicted   the  country. 

Though  the  president  desired  that  provision  should  be 
made  for  the  safety  of  the  public  revenue,  and  that  all  pay- 
ments due  the  Government  should  be  made  in  specie,  he 
evinced  no  serious  concern  for  providing  a  safe  circulating 
currency  for  the  people,  other  than  is  included  in  the  sug- 
gestion that  if  the  Government  refuses  to  receive  the  notes 
of  any  and  all  the  banks,  it  may  tend  to  make  the  banks 
more  careful  in  issuing  and  taking  care  of  their  notes. 

The  situation  was  thoroughly  discussed  by  Congress. 
Senator  Benton  said  that  "the  Government  ought  not  to 
delegate  this  power  if  it  could.     It  was  too  great  a  power 

17 


258  The  Legal-Tender  Problem 

to  be  trusted  to  any  banking  company  whatever,  or  to  any 
authority  but  the  liighest  and  most  responsible  which  was 
known  to  our  form  of  Government.  The  Government  itself 
eeases  to  be  independent  —  it  ceases  to  be  safe  —  when  the 
national  currency  is  at  the  will  of  a  company.  The  Gov- 
ernment can  undertake  no  great  enterprise,  cither  of  ivar  or 
peace,  without  the  consent  or  co-operation  of  that  company. 
.  .  .  The  people  are  not  safe  when  such  a  company  has  such 
a  powxr.  The  temptations  are  too  great,  the  opportunity  too 
easy,  to  put  up  and  down  prices,  to  make  and  break  fortunes, 
to  bring  the  whole  community  on  its  knees  to  the  Neptunes 
who  preside  over  the  flux  and  reflux  of  paper." 

Senator  Calhoun  said  that  "  no  one  can  doubt  but  that 
the  Government  credit  is  better  than  any  bank, —  more  reli- 
able, more  safe.  Why,  then,  should  it  mix  up  with  the 
less  perfect  credit  of  these  institutions?  Why  should  it 
not  be  safe  in  its  own  hands,  while  it  shall  be  considered 
safe  in  the  hands  of  eight  hundred  private  institutions,  scat- 
tered all  over  the  country,  and  which  have  no  other  object 
but  their  own  private  profit,  to  increase  which  they  extend 
their  business  to  the  most  dangerous  extremes?  And  why 
should  the  community  be  compelled  to  give  six  per  cent  dis- 
count for  the  Government  credit,  blended  with  that  of  the 
bank,  zvhen  the  superior  credit  of  the  Government  coidd  be 
furnished  without  discount,  to  the  mutual  advantage  of  the 
Government  and  the  community? 

"  But  whatever  may  be  the  amount  that  can  be  circu- 
lated, I  hold  it  clear,  that  to  that  amount  it  would  be  as 
stable  in  value  as  gold  and  silver  itself,  provided  the  Gov- 
ernment be  bound  to  receive  it  extensively  with  those  metals 
in  all  its  dues,  and  that  it  be  left  perfectly  optional  with 
those  who  have  claims  on  the  Government  to  receive  it  or 
not." 


Van  Buren's  Administration  259 

The  result  of  the  action  of  Congress  was  embodied  in 
the  act  of  October  12,  1837.  This  act  provided  for  the 
issue  of  $10,000,000  in  treasury  notes,  in  denominations  not 
less  than  $50,  to  be  paid  in  one  year  from  date.  They  were 
made  a  legal  tender  for  all  payments  due  the  Government, 
but  not  for  the  pa}-ment  of  private  debts. 

Inasmuch  as  it  was  niediums  of  payment  and  not  invest- 
ments which  were  so  intensely  needed,  and  inasmuch  as 
Congress  did  not  have  the  courage  to  make  the  notes  full 
legal  tenders,  the  president  and  secretary  placed  the  inter- 
est at  the  nominal  rate  of  one  mill  per  annum.  In  this  form, 
though  they  were  not  issued  in  denominations  less  than  $50, 
they  served  in  part  the  purposes  of  money,  and  freely  cir- 
culated in  all  the  channels  of  trade,  the  banks  not  having 
the  power  to  injuriously  afifect  their  use. 

The  fatal  defect  in  the  issue  of  the  treasury  notes  was 
that  they  were  not  issued  as  currency,  but  as  a  debt  of  the 
Government,  and  to  be  paid  in  one  year  from  date.  This 
was  and  could  only  have  been  due  to  the  unwholesome  influ- 
ence that  the  owners  of  gold,  silver,  and  the  banks  have 
always  exercised  over  Congress,  in  the  fear  that  legal-tender 
treasury  notes  would  infringe  their  claimed  constitutional 
right  to  supply  the  currency  of  the  country.  Therefore  even 
a  temporary  use  of  treasury  notes  is  never  permitted  except 
upon  the  assumption  that  they  are  a  debt  of  the  Government, 
and  upon  the  further  understanding  that  they  will  be  re- 
deemed and  retired  from  circulation  as  soon  as  the  exigency 
which  demanded  their  issue  has  been  tided  over. 

It  appears  from  President  Van  Buren's  second  annual 
message,  dated  December  3.  1838,  page  489;  that  only  about 
$8,006,000  of  the  $10,000,000  issued  were  then  outstanding, 
and  that  they  were  being  canceled  as  they  were  being  paid 
into  the  treasurv. 


26o  The  Legal-Tender  Problem 

The  relief  given  to  the  country  by  the  use  of  the  treas- 
ury notes,  though  efficient  and  beneficial,  was  not  full  and 
complete ;  and  their  cancelation  and  retirement,  as  they 
came  into  the  treasury,  made  the  relief  of  such  a  temporary 
character  that  it  was  virtually  an  aggravation  of  the  evil 
which  caused  their  issuance.  On  Alay  31,  1838,  Congress 
therefore  authorized  the  issue  of  $10,000,000  additional 
in  treasury  notes. 

On  March  21,  1840,  Congress  authorized  the  issue  of 
additional  notes  "  in  lieu  of  others  heretofore  or  hereafter 
redeemed,  not  to  exceed  in  the  amount  of  notes-  outstanding 
at  any  time  the  aggregate  of  $5,000,000,  and  to  be  redeemed 
sooner  than  one  year  if  the  means  of  the  treasury  will 
permit." 

It  seemed  impossible  at  that  time,  in  the  warfare  for 
supremacy  between  the  two  bank  factions,  to  secure  for  the 
treasury  notes  any  governmental  recognition,  except  such 
as  one  or  the  other  faction,  which  happened  to  be  in  power, 
would  permit  as  a  mere  temporary  expedient. 


XXVII 

The  Supreme  Court  Saves  the  State  Banks 

The  State  Banks  had  barely  escaped  extermination  in 
the  warfare,  as  is  evident  from  the  facts  in  the  case  of  John 
Briscoe  vs.  The  President  and  Directors  of  the  Bank  of  the 
Commonwealth  of  Kentucky,  decided  at  the  January  term, 
1837,  of  the  Supreme  Court  of  the  United  States.    11  Peters, 

257- 

It  appears  that  the  Legislature  of  Kentucky  chartered 

the  Bank  of  the  Commonwealth  of  Kentucky,  elected  the 

officers  and  directors,  voted  the  funds  of  the  State  into  the 

vault  of  the  bank,  and  the  State,  as  the  bank,  and  in  its 

name,  was  carrying  on  the  banking  business. 

One  John  Briscoe  became  indebted  to  the  bank  in  the 
sum  of  $2,048.37  by  note,  and  refused  to  pay  same,  because, 
as  alleged  in  his  answer,  among  other  defenses,  "  The  bank 
was  authorized  to  issue  bills  of  credit  on  the  faith  of  the 
State,  in  violation  of  the  Constitution  of  the  United  States." 

The  suit  of  the  bank  was  sustained  by  the  State  courts, 
and  judgment  rendered   against   Briscoe. 

A  writ  of  error  was  prosecuted  to  the  Supreme  Court 
of  the  United  States,  where  the  sole  question  was  whether 
the  notes  issued  by  the  bank  are  bills  of  credit  emitted  by 
the  State,  in  violation  of  the  Constitution  of  the  United 
States. 

It  appears  from  the  dissenting  opinion  of  Mr.  Justice 
Story,  that  upon  the  first  argument  of  the  case,  during  the 
life  of  Chief  Justice  Marshall,  the  court  decided  that  the 

261 


262  The  Legal-Tender  Problem 

issue  of  notes,  or  bills  of  credit,  by  the  Bank  of  the  Com- 
monwealth of  Kentucky,  was  in  violation  of  the  constitu- 
tional inhibition  '*  that  no  State  shall  emit  bills  of  credit." 

]\Ir.  Justice  Story  stated  that  "  when  this  cause  was  for- 
merly argued  before  the  court,  a  majority  of  the  judges  who 
then  heard  it  were  decidedly  of  opinion  that  the  act  of  Ken- 
tucky establishing  this  bank  was  unconstitutional  and  void ; 
as  amounting  to  an  authority  to  emit  bill  of  credit  for  and 
on  behalf  of  the  State  within  the  prohibition  of  the  Consti- 
tution of  the  United  States.  In  principle  it  was  thought  to 
be  decided  by  the  case  of  Craig  vs.  The  State  of  Missouri, 
4  Peters,   10. 

"Among  that  majority  was  the  late  Mr.  Chief  Justice 
Marshall.  .  .  .  The  case  has  been  again  argued,  and  precisely 
upon  the  same  grounds  as  at  the  former  argument.  A 
majority  of  my  brethren  have  now  pronounced  the  act  of 
Kentucky  to  be   constitutional." 

From  this  statement  it  is  evident  that  the  death  of  Mr. 
Chief  Justice  Alarshall  and  the  appointment  of  Roger  B. 
Taney  changed  the  political  complexion  of  the  court. 

During  Mr.  Marshall's  life  the  court  was  composed  of 
four  United  States  Bank,  or  property-rights,  judges  and 
three  State-bank  judges.  Upon  the  appointment  of  Mr. 
Taney,  this  was  reversed,  and  the  court  was  composed  of 
four  State-bank  and  only  three  United  States  bank  judges. 

Mr.  Justice  McLean,  who  dissented  from  the  majority 
of  the  court  in  the  case  of  Craig  vs.  The  State  of  iVIissouri, 
because  he  saw  that  the  reasoning  and  principles  of  that  case 
would  prove  fatal  to  the  system  of  State  banks  in  the  event 
their  constitutionality  should  ever  be  called  in  question, 
delivered  the  opinion  of  the  court.  In  the  opinion,  Mr.  Jus- 
tice McLean  openly  and  boldly  admits  that  it  is  a  contest 
for  supremacy  between  the  two  bank  factions  in  the  follow- 
ing:— 


The  State  Banks  Saved  263 

"  This  cause  is  approached  uncler  a  full  sense  of  its  mag- 
nitude. Important  as  has  been  the  great  questions  brought 
before  this  tribunal  for  investigation  and  decision,  none 
have  exceeded,  if  they  have  equaled,  the  importance  of  that 
which  arises  in  this  case.  The  amount  of  property  involved 
in  the  principle  is  very  large;  but  this  amount,  however 
great,  could  not  give  to  the  case  the  deep  interest  which  is 
connected  with   its  political  aspect." 

The  only  issue  presented  for  the  decision  of  the  court 
was  whether  the  act  of  the  Legislature  of  Kentucky,  author- 
izing the  bank  to  emit  bills  of  credit,  was  in  violation  of  the 
prohibition  of  the  Constitution  that  "  no  State  shall  emit 
bills  of  credit." 

If  the  definition  of  a  bill  of  credit  heretofore  given  by 
the  court  in  the  case  of  Craig  vs.  The  State  of  Missouri, 
and  which  has  been  denominated  the  definition  of  the  United 
States  Bank  faction,  is  accepted,  the  matter  would  neces- 
sarily have  to  be  resolved  against  the  constitutionality  of  the 
act  of  the  Legislature  of  Kentucky. 

]\Ir.  Justice  McLean,  in  this  case,  following  the  example 
of  Mr.  Chief  Justice  Marshall  in  Craig  vs.  The  State  of 
Missouri,  and  keeping  in  mind  the  purpose  in  view,  fitted 
the  definition  of  the  term  "  bills  of  credit  "  to  the  facts  of 
the  case,  and  came  to  the  conclusion  that  the  issues  of  the 
Bank  of  the  Commonw^ealth  of  Kentucky  were  not  bills  of 
credit,  and  therefore  the  act  of  the  Legislature  of  Kentucky, 
Sfivinsf  the  bank  the  authoritv  to  emit  notes,  was  not  uncon- 
stitutional.  This  decision  saved  the  State  banking  system 
to  his  faction,  notwithstanding  only  a  short  while  before 
its  death  knell  had  been  sounded  by  :\Ir.  Chief  Justice 
Marshall. 

The  reasoning  of  die  very  learned  judge,  in  reaching 
his  definition,  like  that  of  Mr.   Chief  Justice   Marshall,   in 


264  The  Legal-Tender  Problem 

Craig  vs.  The  State  of  Missouri,  was  more  interesting  than 
instructive.  A  sample  hereinbelow  set  forth,  justifies  the 
statement  that  the  definition  should  be  denominated  that 
of  the  State-bank  faction  :  — 

"  But  the  main  grounds  on  which  the  counsel  for  the 
plaintiffs  rely,"  the  opinion  states,  "  is,  that  the  Bank  of 
the  Commonwealth,  in  emitting  the  bills  in  question,  acted 
as  the  agent  of  the  State ;  and  that,  consequently,  the  bills 
were  issued  by  the  State.  That,  as  a  State  is  prohibited  from 
issuing  bills  of  credit,  it  can  not  do  indirectly  what  it  is  pro- 
hibited from  doing  directly.  .  .  . 

"  If  this  argument  be  correct,  and  the  position  that  a 
State  can  not  do  indirectly  what  it  is  prohibited  from  doing 
directly  be  a  sound  one,  then  it  must  follow,  as  a  necessary 
consequence,  that  all  banks  incorporated  by  a  State  are  un- 
constitutional. [He  meant  all  banks  of  issue,  and  not  banks 
of  deposit,  discount,  exchange,  etc.,  for  there  was  no  inhi- 
bition against  the  States'  chartering  banks,  but  only  against 
their  emitting  bills  of  credit.]  .  .  .  This  doctrine  is  start- 
ling, as  it  strikes  a  fatal  blow  against  the  State  banks,  which 
have  a  capital  of  nearly  $400,000,000,  and  which  supply 
almost  the  entire  circulating  medium  of  the  country." 

It  seems  from  this  that  it  was  asking  too  much  of  the 
Supreme  Court  to  discharge  its  duty,  under  its  oath  to  sup- 
port the  Constitution,  if  it  destroyed  $400,000,000  of  prop- 
erty, and  took  away  from  the  owners  of  those  banks  the 
right  to  loan  their  credit,  in  the  shape  of  bank-notes,  to  the 
people.  It  was  deemed  wiser,  better,  and  more  statesman- 
like to  preserve  them  for  their  assistance  and  support  in 
the  management  and  control  of  the  Government,  than  to  be 
patriotically  and  logically  loyal  to  the  Constitution  and  the 
form  of  Government. 

The  result  was  that  the  violative  abuse  of  the  Constitu- 


The  State  Banks  Saved  265 

tion,  that  was  sustained  by  tlic  Supreme  Court,  in  the  fear 
that  $400,000,000  of  property  would  be  destroyed,  was  con- 
tinued until  i860,  when  the  system  fell  of  its  own  weight, 
inflicting  a  loss  and  injury  greatly  in  excess  of  that  amount. 

This  disposition  of  the  judiciary  —  subserviency  to  fac- 
tion, fear  of  injury  to  property  rights,  and  servility  to  the 
money  power  —  has  done  more  to  pervert  the  purity  of  the 
system  of  our  Government  than  all  the  corrupt  legislation 
of  all  the  Congresses  and  Legislatures  of  the  country. 

At  the  date  of  this  decision,  1837,  there  were  some  eight 
hundred  of  the  institutions  in  the  country.  The  unwise 
conduct  of  Congress  in  supporting  these  institutions  by 
authorizing  the  deposit  of  all  public  money  with  them,  and 
their  mismanagement,  alarmed  President  Jackson,  and 
caused  him  to  take  the  precautionary  measures  that  he  did, 
and  which  proved  so  fatal  to  their  interests  and  the  welfare 
of  the  people. 


XXVIII 

The  First  Iiidependent  Treasury 

The  suspension  of  the  banks  in  1837  did  not  justify 
the  hostile  attitude  of  President  Van  Buren,  which  found 
expression  in  the  act  of  Congress  passed  July  4,  1840^  estab- 
lishing the  first  independent  treasury. 

In  his  third  annual  message,  dated  December  2,  1839, 
he  recommended  the  establishment  of  an  independent  treas- 
ury in  the  following  language :  "  I  have  heretofore  assigned 
to  Congress  my  reasons  for  believing  the  establishment  of 
an  independent  national  treasury,  as  contemplated  by  the 
Constitution,  is  necessary  to  the  safe  action  of  the  Federal 
Government.  The  suspension  of  specie  payments  in  1837,  by 
the  banks  having  the  custody  of  the  public  money,  showed 
in  so  alarming  a  degree  our  dependence  on  those  institutions 
for  the  performance  of  the  duties  required  by  the  law,  that 
I  then  recommended  the  entire  dissolution  of  this  connec- 
tion." 

By  the  terms  of  this  act  the  money  of  the  Government 
was  not  to  be  deposited  in  State  banks,  but  was  to  be  kept 
in  the  mints,  custom-houses,  post-offices,  and  the  treasury 
building;  and  after  January  3,  1843,  the  Government  would 
not  receive  anything  but  gold  and  silver. 

This  law  announcing  that  after  January  3,  1843,  only 
gold  and  silver  would  be  received  by  the  treasury,  notwith- 
standing it  had  notes  outstanding  that  were  receivable  for 
all  debts  and  dues  of  the  Government,  was  intended  to  force 
their  surrender,  so  that  they  could  be  canceled  and  taken 
266 


The  First  Independent  Treasury  267 

out  of  competition  with  gold  and  silver.  Such  drastic 
efforts  upon  the  part  of  the  Government  to  force  its  own 
paper  out  of  circulation  could  only  be  caused  by  some  sin- 
ister motive,  for  there  could  have  been  no  sense  of  insecurity 
in  the  treasury  notes  so  long  as  they  were  receivable  by  the 
Government  in  payment  of  all  public  dues. 

This  attack  ujjon  State-bank  issues  and  the'  treasury 
notes,  endeavoring  to  force  the  circulating  medium  of  the 
country  to  a  jnire  metallic  money,  w^as  made  an  issue  in  the 
presidential  campaign  of  1840.  The  result  was  that  General 
Harrison  was  elected  president. 

After  the  election,  and  before  the  inauguration  of  Gen- 
eral Harrison,  the  distress  was  such  that  Congress,  on  Feb- 
ruary 15,  1841,  authorized  the  issue  of  treasury  notes  "in 
such  sums  as  the  exigency  of  the  Government  may  require, 
but  not  to  exceed  five  million  dollars  of  this  issue ;  pro- 
vided that  the  treasury  notes  heretofo*  issued,  unredeemed, 
and  added  to  the  notes  issued  under  this  act,  shall  not  exceed 
five  million  dollars,  and  that  they  be  redeemed  in  the  last 
quarter  of  the  year,  if  the  condition  of  the  treasury  will 
permit." 

This  was  strange  conduct  on  the  part  of  a  retiring 
administration  which  had  within  the  year  endeavored  to 
force  the  surrender  of  treasury  notes  by  the  enactment  of  a 
law  that  after  January  3,  1843,  they  would  not  be  received 
by  the  Government.  It  was  evidently  done  to  forestall  the 
necessity  for  the  change  in  the  finances  that  the  Whigs  would 
claim  should  be  made,  and  was  an  acknowledgment  of  the 
efficiency  of  treasury  notes,  and  of  the  sinister  motives  that 
had  caused  the  passage  of  the  act  of  July  4.  1840,  notwith- 
standing "the  danger  of  inconvenience  to  the  public  and 
unreasonable  pressure  upon  sound  banks."  that  the  president 
stated  in  his  message  had  been  urged  as  objections. 


XXIX 

The  Property-Rights  Faction  Again   in    Control 

of  the  Government 

The  bitterness  of  the  money  factions,  as  expressed  in 
party  action,  became  so  intense  and  so  unmindful  of  the 
pubHc  weal  that  President  Harrison,  in  his  inaugural,  re- 
buked it  in  the  following  language :  — 

"  Before  concluding,  fellow  citizens,  I  must  say  some- 
thing to  you  on  the  subject  of  the  parties  at  this  time  exist- 
ing in  our  country.  To  me  it  appears  perfectly  clear  that 
the  interest  of  the  co]^itry  requires  that  the  violence  of  the 
spirit  by  which  those  parties  are  at  this  time  governed  must 
be  greatly  mitigated,  if  not  entirely  extinguished,  or  con- 
sequences will  ensue  which  are  appalling  to  be  thought  of. 

"  If  parties  in  a  republic  are  necessary  to  secure  a  degree 
of  vigilance  sufficient  to  keep  the  public  functionaries  within 
the  bounds  of  law  and  duty,  at  that  point  their  usefulness 
ends.  Beyond  that  they  become  destructive  of  public  vir- 
tue, the  parent  of  a  spirit  antagonistic  to  that  of  liberty, 
and  eventually  its  inevitable  conqueror.  We  have  examples 
of  republics  where  the  love  of  country  and  liberty  at  one 
time  were  the  dominant  passions  of  the  whole  mass  of  citi- 
zens, and  yet,  with  the  continuance  of  the  name  and  form 
of  free  government,  not  a  vestige  of  these  qualities  remain- 
ing in  the  bosom  of  any  one  of  the  citizens.  .  .  . 

"  The  spirit  of  liberty  had  fled,  .  .  .  and  so  under  the 
operation  of  the  same  causes  and  influences,  it  will  fly  from 
our  capitol  and  our  forums.  .  .  .  Such  a  tendency  has  ex- 
268 


Property-Rights  Faction  in  Control       269 

isted  —  does  exist.  ...  It  becomes  my  duty  to  say  to  you 
that  there  exists  in  the  land  a  spirit  hostile  to  liberty  itself. 
It  is  a  spirit  contracted  in  its  views,  selfish  in  its  objects.  It 
looks  to  the  aggrandizement  of  a  few  even  to  the  destruction 
of  the  interests  of  the  whole." 

These  were  alarming  ideas  for  the  president  of  the  prop- 
erty-rights faction  to  announce,  and  it  was  unfortunate  that 
the  plain-speaking  old  warrior  did  not  live  to  put  them  into 
practise. 

The  condition  of  the  finances,  as  he  stated  in  his  proc- 
lamation of  March  17,  1841,  was  such  that  he  thought  it 
advisable  to  call  an  extra  session  of  Congress  for  the  3d 
day  of  May  following;  but  unfortunately  he  died  on  April 
4,  1841,  and  the  discharge  of  the  duties  of  the  presidential 
office  devolved  upon  the  vice-president,  John  Tyler,  of  Vir- 
ginia. 


XXX 

The  JVarfare  of  the  Bank   of  the   United  States 
Against  President  Tyler 

Mr.  Tyler  seemed  to  have  a  premonition  of  the  war- 
fare that  would  be  waged  against  him,  for  in  his  inaugural 
he  says,  "  For  the  first  time  in  our  history  the  vice-presi- 
dent of  the  United  States,  by  the  happening  of  a  contin- 
gency provided  for  in  the  Constitution,  has  had  devolved 
upon  him  the  presidential  office.  The  spirit  of  faction,  which 
is  directly  opposed  to  a  spirit  of  lofty  patriotism,  may  find 
in  this  occasion  for  assaults  upon  my  administration." 

In  his  special  message,  dated  June  i,  1841,  he  stated, 
"  Within  a  few  years  past,  three  diflferent  schemes  have 
been  before  the  country.  The  charter  of  the  Bank  of  the 
United  States  expired  by  its  own  limitations  in  1836.  An 
effort  was  made  to  renew  it,  which  received  the  sanction 
of  the  two  houses  of  Congress ;  but  the  president  of  the 
United  States  exercised  his  veto  power,  and  the  measure 
was  defeated.  A  regard  to  truth  requires  me  to  say  that 
the  president  was  fully  sustained  in  the  course  he  had  taken 
by  the  popular  voice. 

"  His  successor  to  the  chair  of  state  unqualifiedly  pro- 
nounced his  opposition  to  any  new  charter  of  a  similar  insti- 
tution, and  not  only  the  popular  election  which  brought  him 
into  power,  but  the  elections  through  much  of  his  term, 
seemed  clearly  to  indicate  a  concurrence  with  him  in  senti- 
ment on  the  part  of  the  people.  After  the  public  moneys 
were  withdrawn  from  the  United  States  bank,  they  were 
270 


frarfare  Against  President  Tyler         271 

placed  on  deposit  with  the  State  banks,  and  the  result  of 
that  policy  has  been  before  the  country.  To  say  nothing  as 
to  the  question  whether  that  experiment  was  made  under 
propitious  or  adverse  circumstances,  it  may  be  safely  as- 
serted that  it  did  receive  the  unqualified  condemnation  of 
most  of  its  early  advocates,  and,  it  is  believed,  was  also 
condemned  by  the  popular  sentiment.  The  existing  sub- 
treasury  system  does  not  seem  to  stand  in  high  favor  with 
the  people,  but  has  recently  been  condemned  in  a  manner 
too  plainly  indicated  to  admit  of  a  doubt.  Thus  in  the 
short  period  of  eight  years  the  popular  voice  may  be  re- 
garded as  having  successively  condemned  each  of  three 
schemes  of  finance  to  which  I  have  adverted.  .  .  .  The  late 
contest,  which  terminated  in  the  election  of  General  Harri- 
son to  the  presidency,  was  decided  on  principles  well  known 
and  openly  declared ;  and  while  the  sub-treasury  received  in 
the  result  the  most  decided  condemnation,  yet  no  other 
scheme  of  finance  seemed  to  have  been  concurred  in." 

This  Congress,  fresh  from  the  people, —  who  had  just 
condemned  the  attempt  to  force  the  treasury  notes  out  of 
circulation, —  appears  to  have  surrendered  to  the  influence 
of  the  Bank  of  the  United  States  faction,  for  on  July  21, 
1 84 1,  it  authorized  the  issue,  during  the  year,  of  twelve  mil- 
lions of  six-per-cent  bonds.  The  proceeds  of  the  sale  were 
to  be  used  first  to  pay  and  retire  from  circulation  the  treas- 
ury notes  previously  issued,  and  the  balance  to  be  used  in 
defraying  the  expenses  of  the  Government. 

Though  the  use  of  the  treasury  notes  was  relieving  the 
distress  occasioned  by  the  scarcity  of  money,  it  had  no  influ- 
ence upon  a  Congress  that  was  controlled  by  a  faction 
which  hoped  to  make  the  currency  so  scarce  that  it  would 
create  a  condition  of  affairs  that  would  demand  the  char- 
tering of  another  United  States  bank.    Therefore  Congress, 


272  The  Legal-Tender  Problem 

having  provided  for  the  retirement  of  the  treasury  notes, 
passed  "An  Act  to  incorporate  the  subscribers  to  the  Fiscal 
Bank  of  the  -United  States." 

This  act  was  vetoed  by  President  Tyler  on  August  i6, 
1841.  In  his  veto  message,  President  Tyler  stated  that  "  the 
power  of  Congress  to  create  a  national  bank  to  operate  per 
se  over  the  Union  has  been  a  question  of  dispute  from  the 
origin  of  the  Government.  Men  most  justly  and  deservedly 
esteemed  for  their  high  intellectual  endowments,  their  vir- 
tue, and  their  patriotism,  have,  in  regard  to  it,  entertained 
different  and  conflicting  opinions ;  Congresses  have  differed ; 
the  approval  of  one  president  has  been  followed  by  the  dis- 
approval of  another ;  the  people  at  different  time  have  acqui- 
esced in  decisions  both  for  and  against  it.  .  .  .  It  will  suffice 
for  me  to  say  that  my  opinion  has  been  uniformly  proclaimed 
to  be  against  the  exercise  of  any  such  power  by  this  Govern- 
ment." 

Let  the  reader  understand  that  this  was  the  language  of 
a  president  long  after  Chief  Justice  Marshall  and  his  three 
property-rights  associate  justices  decided  that  Congress  had 
the  constitutional  right  to  grant  a  charter  to  a  bank ;  let 
him  recall  that  President  Jackson  entertained  similar  views, 
and  was  elected  president  the  second  time  upon  this  single 
issue ;  that  President  Van  Buren  entertained  the  same  views, 
and  he  will  have  a  pretty  accurate  idea  of  the  respect  in 
which  said  opinion  of  the  Supreme  Court  was  held  at  that 
time.  And  yet,  all  these  condemnations  of  the  unsound 
and  unconstitutional  opinion  are  ignored,  and  this  country 
is  afflicted  to-day  by  national  banks  chartered  by  Congress. 
This  is  because  under  our  form  of  Government  the  acts  of 
presidents.  Congresses,  and  the  people  are  regarded  as 
ephemeral,  while  an  opinion  of  the  Supreme  Court,  however 
unsound  and  unwise,  remains  the  law  until  it  is  reversed, 


PFarfare  Against  President  Tyler         273 

which  is  seldom  done,  on  account  of  hfe  tenure  and  fealty 
to  faction. 

This  same  Congress,  on  August  13,  1841,  passed  an  act 
repealing  the  Democratic  act  of  June,  1836,  and  provided 
that  the  Government  deposits  should  be  made  in  the  State 
bank.  This  act  also  repealed  the  Sub-treasury  Act  of  Presi- 
dent Van  Buren's  administration,  and  provided  for  the  re- 
ception of  all  bank-notes  by  the  treasury. 


18 


XXXI 

The  UHiig,  or  Property-Rights,  Party  Forced  to 
Issue  Treasury  Notes 

In  President  Tyler's  first  annual  message,  dated  Decem- 
ber 7,  1 84 1,  he  says,  "  Of  the  loan  of  $12,000,000,  which 
was  authorized  by  Congress  at  its  last  session,  only  $5,432,- 
726.88  has  been  negotiated."  In  the  message  he  also  recom- 
mended a  financial  system. 

These  recommendations  had  no  special  merit,  but  only 
show  the  futile  attempt  of  an  honest  and  patriotic  president 
to  devise  some  plan,  which,  while  escaping  the  evils  of  the 
State-bank  and  national-bank  systems,  would  yet  preserve 
the  constitutional  limitation  of  the  money  of  the  country  to 
gold  and  silver,  unconscious  that  it  was  impracticable  and 
impossible. 

President  Tyler  understood  clearly,  as  did  Presidents 
Jackson  and  Van  Buren,  that  the  action  of  Congress  in  char- 
tering a  bank,  and  the  action  of  the  State  Legislatures  in 
authorizing  banks  chartered  by  them  to  issue  notes,  was 
violative  of  the  Constitution,  notwithstanding  the  factional 
decisions  of  the  Supreme  Court,  and  that  their  operations 
were  highly  inimical  to  the  welfare  of  both  the  country  and 
the  people ;  but  he  had  no  conception  that  the  cause  of  the 
necessity  for  their  inception  and  existence  was  in  the  abuse 
that  had  been  incorporated  in  the  Constitution  limiting  the 
money  to  gold  and  silver,  and  withholding  from  the  Gov- 
ernment the  exercise  of  the  sovereign  right  to  emit  bills  of 
credit  as  a  pure  currency. 
274 


Forced  to  Issue  Treasury  Notes  275 

Therefore  in  their  efforts  to  ehminate  and  destroy  the 
evil,  of  which  they  did  not  entertain  a  doubt,  they  were 
unsuccessful,  and  failed  completely  to  devise  a  remedy  that 
would  remove  the  necessity  for  the  reappearance  of  the 
evils.  On  the  contrary,  in  their  intense  regard  for  the  Con- 
stitution and  in  their  efforts  to  drive  the  circulation  to  a  pure 
metallic  currency,  they  were  unconsciously  forcing  the  coun- 
try into  a  condition  where  the  distress  was  such  that  the 
people  distractedly  and  blindly  followed  the  leadership  of 
the  property-rights  faction  back  into  the  very  evils  from 
which   they  had  been  rescued. 

It  is  strange  that  Mr.  Jefferson  and  Mr.  Calhoun  could 
see  the  cause  of  the  trouble  so  plainly,  and  know  that  the 
only  remedy  lay  in  the  right  of  the  Government  to  exercise 
the  sovereign  power  of  issuing  treasury  notes  "  bottomed 
on  taxes,"  and  yet  never  agitated  an  amendment  of  the 
Constitution  to  give  Congress  that  power  and  right,  but 
were  content  to  contend  for  the  right  of  Congress  to  exercise 
such  power,  knowing  that  if  they  were  successful,  a  suc- 
ceeding Congress  would  have  the  right  to  repeal  it. 

The  experience  of  the  country,  in  the  course  of  time, 
under  the  stress  of  the  direst  necessity,  forced  a  condition 
of  affairs  where  the  Supreme  Court  was  obliged  to  assert 
and  maintain  the  right  of  Congress  to  issue  treasury' notes, 
as  full  legal  tenders,  and  to  decide  further  that  the  treasury 
notes  were  no  more  to  be  redeemed  in  gold  and  silver  than 
the  gold  and  silver  dollars  were  to  be  redeemed  with  treas- 
ury notes;  and  yet  this  principle  that  was  forced  upon  the 
acceptance  of  the  country  as  the  law,  finds  no  observance 
among  the  powers  in  control  of  the  Government. 

Congress  seems  to  have  paid  no  attention  to  the  recom- 
mendations of  the  president,  and  not  having  the  time  to  so 
shape  the  loan  as  to  raise  the  necessary  revenue  for  the  Gov- 


2/6  The  Legal-Tender  Problem 

ernment,  it  was  compelled,  on  January  31,  1842,  to  author- 
ize the  issue  of  not  more  than  five  millions  of  treasury  notes 
to  tide  over  the  year. 

By  April  15,  1842,  Congress,  in  its  fight  against  the 
president,  became  bolder  and  more  determined,  and  it  passed 
an  act  enlarging  the  loan  of  $12,000,000  by  an  additional 
$5,000,000,  to  run  twenty  years,  and  also  made  all  the  treas- 
ury notes  bear  six  per  cent  interest  until  redeemed. 

It  appears  that  the  president  was  mistaken  in  assuming 
that  the  reason  the  $12,000,000  loan  could  not  be  placed 
was  because  of  the  short  time  it  was  to  run,  as  he  stated 
in  his  message ;  for  after  the  time  was  extended  twenty 
years,  and  the  taxes  and  duties  were  pledged  for  their  pay- 
ment, it  was  impossible  to  place  the  loan,  and  Congress  on 
August  31,  1842,  passed  an  act  that  if  the  balance  of  the 
loan  could  not  be  sold  for  par,  treasury  notes  not  exceeding 
six  million  should  be  issued  in  lieu,  and  that  all  notes  re- 
deemed should  be  reissued  up  to  April  15,  1843. 

On  March  3,  1843,  Congress  passed  an  act  fixing  the 
value  of  certain  foreign  coins,  and  making  them  legal  tender 
at  that  value.  On  this  same  date  Congress  passed  an  act 
that  all  treasury  notes  redeemed  before  July  i,  1844,  should 
be  reissued,  if  the  wants  of  the  public  service  required  it; 
that  after  maturity  they  should  cease  to  bear  interest,  and, 
if  they  could  not  be  redeemed,  the  president  was  authorized 
to  take  them  up  by  bonds  issued  under  the  terms  of  the  act 
providing  for  the  issue  of  the  twelve  millions. 

In  his  fourth  annual  message,  dated  December  3,  1844, 
the  president  stated  that  "  the  greatly  improved  condition 
of  the  treasury  affords  a  subject  for  general  congratulation. 
The  paralysis  which  fell  on  trade  and  commerce,  and  which 
subjected  the  Government  to  the  necessity  of  resorting  to 
loans  and  the  issue  of  treasury  notes  to  a  large  amount,  has 


Forced  to  Issue  Treasury  Notes  277 

passed  away;  and  after  the  payment  of  upwards  of  $i,cxx),- 
000  on  account  of  the  interest,  and  in  redemption  of  more 
than  five  millions  of  the  public  debt  which  falls  due  on  the 
first  of  January  next,  and  the  setting  part  of  $2,000,000  for 
the  payment  of  outstanding  treasury  notes,  an  estimated 
surplus  of  upwards  of  $7,000,000,  over  and  above  the  exist- 
ing appropriations,  will  remain  in  the  treasury.  .  .  .  Should 
the  treasury  notes  continue  outstanding  as  heretofore,  that 
surplus   will  be  considerably  augmented. 

"Although  all  interest  has  ceased  upon  them,  and  the 
Government  has  invited  their  return  to  the  treasury,  yet 
they  remain  outstanding,  afifording  great  facilities  for  com- 
merce, and  establishing  the  fact  that  under  a  iv ell-regulated 
system  of  finance  the  Government  has  resources  zvithin  itself 
zvhich  render  it  independent  in  time  of  need,  not  only  of 
private  loans,  hut  also  of  bank  facilities; "  and  he  might 
have  added  of  gold  and  silver. 

A  Whig,  or  property-rights.  Congress,  in  its  desire  to 
get  these  efficient  treasury  notes  out  of  circulation,  so  that 
they  would  not  compete  with  gold  and  silver,  stopped  the 
interest  upon  them,  and,  as  the  president  stated,  invited  the 
people  to  exclt^nge  them  for  six-per-cent  bonds.  It  is 
strange  that  this  tempting  invitation  has  never  succeeded 
in  getting  the  people  to  surrender  the  treasury  notes.  That 
the  Government  has  never  taken  advantage  of  the  fact 
that  their  legal  tender  has  to  be  taken  away  before  the  peo- 
ple can  be  induced  to  surrender  them,  is  still  more  remark- 
able. 

That  treasury  notes,  when  issued,  must  be  a  debt  of  the 
Government,  is  disproved  by  the  consideration  that  when 
they  are  legal  tenders,  and  do  not  bear  interest,  their  effi- 
ciency, as  mediums  of  payment,  is  so  valuable  to  trade  and 
commerce  that  the  Government  is  not  only  not  asked,  but 


2/8  The  Legal-Tender  Problem 

not  permitted,  to  redeem  them.  The  people  never  treat  them 
as  a  debt,  and  the  Government  is  not  allowed  to  pay  them 
until,  in  its  idiotic  or  criminal  determination  to  do  so,  it 
deprives  them  of  legal  tender,  and  makes  them  worthless 
as  mediums  of  payment. 

This  was  so  evident  to  President  Tyler,  in  the  practical 
application  the  people  were  making  of  them,  and  their 
refusal  to  surrender  them  for  bonds  upon  the  invitation  of 
the  property-rights  Congress,  that  he  unconsciously  uttered 
the  greatest  financial  truism  that  has  emanated  from  any 
American  statesman,  when  he  said  that  their  remaining  out- 
standing "  established  the  fact  that  under  a  well-regulated 
system  of  finance,  the  Government  has  resources  within 
itself  which  render  it  independent  in  time  of  need,  not  only 
of  private  loans,  but  also  of  bank  facilities." 


XXXII 

President  Polk's  Administration,  the  Second  Inde- 
pendent Treasury,  and  the  Panic  of  1847 

The  principles  of  the  Whig  party  were  made  so  unpop- 
ular by  President  Jackson  after  the  defeat  of  their  idol, 
Henry  Clay,  that  they  became  thoroughly  disheartened. 
Van  Buren's  ignorant  endeavor  to  pursue  Jackson's  policy 
was  made  the  more  disastrous  by  the  New  York  influences 
that  controlled  his  actions.  The  consequence  was  that  when 
he  had  so  completely  ignored  the  State  banks,  repudiated 
the  treasury  notes,  and  forced  the  money  of  the  country  to  a 
metallic  base,  he  had  so  weakened  himself  that  it  was  pos- 
sible to  influence  the  people  to  defeat  him,  if  men,  who  were 
not  the  tools  of  the  property-rights  faction,  should  be  nom- 
inated by  that  party.  Therefore  all  the  old  leaders  were  set 
aside,  and  General  Harrison  and  Mr.  Tyler  were  nominated 
for  president  and  vice-president,  in  the  hope  that,  if  elected, 
they  could  be  cajoled  or  intimidated  into  putting  the  prin- 
ciples of  the  property-rights  faction  into  the  policies  and 
practises  of  the  Government. 

What  General  Harrison  might  have  done  had  he  lived, 
it  is  not  necessary  to  surmise ;  but  a  close  reading  of  his 
inaugural  inclines  one  to  believe  that  they  would  have  been 
as  much  disappointed  in  hini  as  they  were  in  Mr.  Tyler.  In 
Mr.  Tyler,  as  his  administration  showed,  they  found  a 
Jacksonian  Democrat,  truer  to  his  (Jackson's)  policy,  and 
far  more  intelligently  so,  than  Van  Buren. 

Another  presidential  contest  was  now  at  hand,  and  the 

279 


28o  The  Legal-Tender  Problem 

Whig  faction  organized  for  the  fight  upon  a  more  honest 
program.  They  had  suffered  so  severely  from  their  du- 
pHcity  in  selecting  two  candidates  for  president  and  vice- 
president  who  were  popular  because  they  were  known  not  to 
be  committed  to  their  most  vicious  principles,  that  they 
appeared  in  their  true  colors,  and  nominated  their  idol, 
Henry  Clay.  The  result  of  the  election  was  the  selection  of 
James  K.  Polk  as  president  and  the  return  of  the  Democrats 
to  power. 

In  his  first  annual  message,  page  406,  President  Polk 
said :  — 

"  By  the  Constitution  of  the  United  States  it  is  provided 
that  no  money  shall  be  drawn  from  the  treasury  but  in 
consequence  of  appropriations  made  by  law.  A  public  treas- 
ury was  undoubtedly  contemplated  and  intended  to  be  cre- 
ated in  which  the  public  money  should  be  kept  from  the 
period  of  collections  until  needed  for  public  use.  ...  It  is 
not  to  be  imagined  that  the  framers  of  the  Constitution 
could  have  intended  that  a  treasury  should  be  created  as  a 
place  of  deposit  and  safe-keeping  of  the  public  money, 
which  w^as  irresponsible  to  the  Government.  .  .  . 

"  That  banks,  national  or  State,  could  not  have  been  in- 
tended to  be  used  as  a  substitute  for  the  treasury  spoken  of 
in  the  Constitution  as  keepers  of  the  public  money,  is  mani- 
fest from  the  fact  that  at  that  time  there  was  no  national 
bank,  and  but  three  or  four  State  banks,  of  limited  capital, 
existed  in  the  country.  .  .  .  Our  experience  has  shown  that 
when  banking  corporations  have  been  the  keepers  of  the 
public  money,  and  been  thereby  made,  in  effect,  the  treas- 
ury, the  Government  could  have  no  guarantee  that  it  could 
command  the  use  of  its  own  money  for  public  purposes. 
The  Bank  of  the  United  States  proved  to  be  faithless.  .  .  . 
The  State  banks,  which  were  afterward  employed,  were 
faithless.  .  .  . 


The  Panic  of  1 847  281 

"  The  public  money  should  not  be  mingled  with  the  pri- 
vate funds  of  banks  or  individuals  or  used  for  private  pur- 
poses. .  .  .  Where  it  is  placed  in  the  banks  for  safe-keep- 
ing, it  is  in  effect  loaned  to  them  unthout  interest,  and  is 
loaned  by  them  upon  interest  to  the  borrowers  from  them. 
The  public  money  is  converted  into  banking  capital,  and  is 
used  and  loaned  out  for  private  profit  of  the  bank  stockhold- 
ers. ...  If  the  public  money  be  not  permitted  to  be  thus 
used,  but  be  kept  in  the  treasury  and  paid  out  to  the  public 
creditors  in  gold  and  silver,  the  temptation  aiforded  by  its 
deposit  with  banks  to  an  undue  expansion  of  their  business, 
would  be  checked,  while  the  amount  of  the  constitutional 
currency  left  in  circulation  would  be  enlarged  by  its  employ- 
ment in  the  public  collections  and  disbursements.  .  .  . 

"  Entertaining  the  opinion  that  the  separation  of  the 
money  of  the  Government  from  banking  institutions  is  in- 
dispensable for  the  safety  of  the  funds  of  the  Government 
and  the  rights  of  the  people,  I  recommend  to  Congress  that 
provision  be  made  by  law  for  such  separation,  and  that  a 
constitutional  treasury  be  created  for  the  safe-keeping  of  the 
public  money.  ...  To  say  that  the  people  or  their  Govern- 
ment are  incompetent,  or  not  to  be  trusted  with  the  cus- 
tody of  their  own  money  in  their  own  treasury,  provided  by 
themselves,  but  must  rely  on  the  presidents,  cashiers,  and 
stockholders  of  banking  corporations,  not  appointed  by  them 
nor  responsible  to  them,  would  be  to  concede  that  they  are 
incompetent  for  self-government." 

On  July  22,  1846.  the  exigencies  of  the  Government 
were  such  that  Congress  authorized  the  issue  of  six-per-cent 
treasury  notes  not  to  exceed  the  sum  of  ten  million  dollars, 
or,  if  the  president  should  think  best,  issue  six-per-cent 
bonds  instead.  The  treasury  notes  were  to  be  redeemed 
in  one  vcar  from  date  of  issue  and  the  bonds  in  ten  years. 


282  The  Legal-Tender  Problem 

Treasury  notes  were  issued  to  the  amount  of  $7,687,800, 
bearing  interest  from  one  mill  to  five  and  two-fifths  per  cent. 

On  August  6,  1846,  Congress  established  the  independ- 
ent treasury.  It  provided  that  all  treasury  notes,  as  well 
as  gold  and  silver  coins,  should  be  received  equally  in  pay- 
ment of  all  debts  of  the  Government,  but  excluded  all  bank- 
notes. It  further  provided  that  all  Government  money 
should  be  kept  by  all  ofiicers  of  the  Government  under  bond, 
until  it  could  be  deposited  in  the  treasury.  It  completely 
separated  the  affairs  of  the  Government  from  any  connec- 
tion with  or  dependence  on  the  banks. 

On  May  13,  1846,  war  was  declared  with  Alexico,  and 
to  prevent  a  threatened  deficiency  by  July  i,  1847,  i^  the 
war  continued  until  that  time,  the  act  of  July  22  was  passed. 

The  imperative  expenditures  growing  out  of  the  war 
forced  Congress  to  resort  to  the  issue  of  treasury  notes,  and 
on  January  28,  1847,  twenty-three  millions  were  authorized 
to  be  issued  ;  and,  in  addition,  authority  was  given  to  reissue, 
in  lieu  of  the  notes  of  this  act  that  might  be  redeemed,  such 
an  amount  of  notes  as,  with  the  notes  of  previous  issues 
outstanding,  would  not  exceed  five  million  dollars.  The 
twenty-three  millions  issued  to  be  in  denominations  not  less 
than  $50 ;  to  bear  interest  at  six  per  cent  or  less,  which  was 
to  cease  after  maturity ;  to  be  redeemed  in  one  and  two  years 
from  date,  with  interest-bearing  bonds ;  and  to  be  legal 
tenders  for  all  debts  and  dues  of  the  Government,  but  not 
for  the  payment  of  private  debts. 

It  is  evident  that  they  were  not  issued  as  currency,  for 
they  were  in  denominations  not  less  than  $50,  were  only 
transferable  by  delivery  and  indorsement,  and  the  act  pro- 
yided  that  they  should,  in  the  discretion  of  the  president, 
be  used  to  borrow  money. 

Notwithstanding  the  past  experience  in  issuing  treasury 


The  Panic  of  1S47  283 

notes,  the  teachings  of  Mr.  Jefferson,  the  observation  of  Mr. 
Tyler,  the  proved  inefficiency  of  the  banks,  and  the  neces- 
sity for  and  utihty  of  treasury  notes  in  all  dire  contingencies, 
a  Democratic  Congress  could  not  attain  to  the  financial 
wisdom  of  issuing  them  as  money,  but  continued  to  issue 
them  as  a  debt  of  the  Government,  and  made  provision  to 
force  their  surrender  for  cancelation  and  retirement  as  soon 
as  it  could  be  done. 

President  Jackson,  by  his  rebuke  of  the  State  banks  for 
their  mismanagement  and  speculative  expansion  of  their 
credits,  and  President  Van  Buren,  by  his  active  hostility 
toward  them,  destroyed  all  confidence  in  those  institutions, 
and  they  were  forced  to  suspend  specie  payments. 

The  practical  operation  of  the  law,  which  required  all 
payments  to  the  Government  to  be  made  in  gold  and  silver, 
made  it  impossible  for  the  banks  to  secure  and  hold  enough 
to  make  a  semblance  of  ability  to  resume  specie  payments, 
and  the  period  was  most  disastrous  to  them. 

Silver  and  gold  only  circulated  in  such  channels  as  they 
could  with  safety,  and  not  run  the  risk  of  getting  into  the 
banks,  where  they  would  be  exchanged  for  bank-issues. 
There  was  no  chance  for  the  banks,  under  such  circum- 
stances, ever  to  get  in  a  condition  to  resume  specie  pay- 
ments ;  but  after  the  Whigs,  under  President  Tyler,  got 
control  of  the  Government,  and  treasury  notes  and  bank- 
issues  were  not  discriminated  against,  confidence  in  the 
banks  was  renewed.  They  were  able  to  secure  specie  in 
sufficient  quantity  to  announce  that  they  had  resumed  specie 
payments,  and  by  the  end  of  1846  were  able  to  pay  specie 
when  demanded. 

They  were  not  able  to  pay  all  demands,  if  a  run  should 
be  made  on  the  banks  (nor  are  the  banks  ever  able  to  do 
that)  ;    but    untler    the    Whig    admini-stration    they    secured 


284  The  Legal-Tender  Problem 

enough  specie  to  justify  their  announcement  that  they  had 
resumed,  which  only  means,  "  Have  confidence  in  our  insti- 
tutions, and  don't  all  ask  to  be  paid  at  once,  and  we  will  be 
able  to  furnish  specie  to  those  who  need  it  for  specific  pur- 
poses." 

When,  however.  President  Polk's  administration  dis- 
criminated against  bank-issues,  and  it  was  incumbent  on 
specie  to  circulate  in  channels  where  it  would  not  get  mixed 
with  and  be  exchanged  for  bank-notes,  confidence  in  the 
banks  was  destroyed,  and  they  were  soon  drained  of  what 
specie  they  had,  and  forced  to  suspend  specie  payments. 

This  precipitated  and  caused  the  panic  of  1847.  This 
panic,  and  the  resultant  loss  to  the  people,  was  caused  by 
the  Democratic  administration's  forcing  the  appropriation  of 
all  the  basic  money  of  the  country  to  the  support  of  the 
Government,  and  the  refusal  to  accept  State-bank  notes. 
Such  management,  with  its  attendant  loss  of  property  and 
distress  of  the  people  who  constitute  and  support  the  Gov- 
ernment, is  not  pardonable  on  the  ground  that  it  was  unin- 
tentional and  unconscious. 

If  the  policy  adopted  had  to  be  pursued,  and  the  experi- 
ence with  banks.  State  and  national,  demanded  and  justified 
their  condemnation  and  destruction,  the  Government  should 
not  have  been  satisfied  with  discriminating  against  them, 
and  leave  their  worthless  issues  to  be  forced  upon  an  inno- 
cent people,  but  it  should  have  passed  the  necessary  legis- 
lation to  have  wound  up  the  institutions,  and  made  provi- 
sion that,  as  their  notes  w^ere  retired,  treasury  notes  should 
be  issued  in  their  stead,  and  thus  protected  the  people. 

Instead,  however,  it  appears  that  the  Democratic  Con- 
gress adopted  the  policies  of  the  Whig  party,  and  passed, 
on  March  31,  1848,  an  act  to  authorize  a  loan  not  to  exceed 
the  sum  of  sixteen  million  dollars.     The  bonds  issued  to 


The  Panic  of  1847  285 

secure  this  loan  were  to  run  twenty  years,  and  were  to  bear 
an  annual  interest  not  to  exceed  six  per  cent.  This  money 
was  borrowed  to  meet  the  expenses  that  arose  out  of  the 
continuation  of  the  Mexican  war,  and  was  so  welcome  to 
the  money  faction  that  they  paid  a  premium  of  $487,191.16 
on  the  sixteen  millions.  Though  a  Democratic  Congress 
was  raising  funds  to  fight  the  Mexican  war  in  a  manner 
that  furnished  the  money  faction  with  good  interest-pay- 
ing investments,  it  made  no  provision  to  supply  a  circulating 
currency  to  the  people,  but  relegated  them  and  the  success 
of  their  business  to  the  State-bank  issues,  which  the  Gov- 
ernment refused  to  receive. 

In  his  third  annual  message,  dated  December  7,  1847, 
page  556,  the  president  says :  — 

"  The  constitutional  treasury,  created  by  a  former  act, 
went  into  operation  on  the  first  of  January  last.  .  .  .  While 
the  fiscal  operations  of  the  Government  have  been  conducted 
with  regularity  and  ease  under  this  system,  it  has  had  a 
salutary  efifect  in  checking  and  preventing  an  undue  inflation 
of  the  paper  currency  issued  by  the  banks  which  exist  under 
State  charters.  Requiring,  as  it  does,  all  dues  to  the  Gov- 
ernment to  be  paid  in  gold  and  silver,  its  effect  is  to  restrain 
excessive  issues  of  the  bank  paper  by  the  banks  dispropor- 
tional  to  the  specie  in  their  vaults,  for  the  reason  that  they 
are  at  all  times  liable  to  be  called  on  by  the  holders  of  their 
notes  for  their  redemption  in  order  to  obtain  specie  for  the 
payment  of  duties  and  other  public  dues.  The  banks,  there- 
fore, must  keep  their  business  within  prudent  limits,  and 
be  always  in  a  condition  to  meet  such  calls,  or  run  the 
hazard  of  being  compelled  to  suspend  specie  payments,  and 
be  thereby  discredited." 

With  this  financial  sword  suspended  over  the  State 
banks,  while  they  were  endeavoring  to  supply  the  currency 


286  The  Legal-Tender  Problem 

necessary  to  conduct  business,  and  to  pay  the  additional 
taxes  to  carry  on  the  war,  the  people  must  have  been  sorely 
oppressed,  and  it  should  not-  be  strange  that  the  country 
suffered  a  panic  in  1848.  That  this  panic  was  due  to  the 
issue  of  bonds  instead  of  treasury  notes,  is  evidenced  by  the 
following  from  the  president's  message  :  — 

"  The  amount  of  specie  imported  into  the  United  States 
during  the  last  fiscal  year  was  $24,121,289,  of  which  there 
was  retained  in  the  country  $22,270,170.  Had  the  former 
financial  system  prevailed,  and  the  public  moneys  been 
placed  on  deposit  in  the  banks,  nearly  the  whole  of  this 
amount  would  have  gone  into  their  vaults,  not  to  be 
thrown  into  circulation  by  them,  but  to  be  withheld  from 
the  hands  of  the  people  as  a  currency.^  and  made  the  basis 
of  new  and  enormous  issues  of  bank  paper.  A  large  pro- 
portion of  the  specie  imported  has  been  paid  into  the  treas- 
ury for  public  dues,  and  having  been  to  a  great  extent 
recoined  at  the  mint,  has  been  paid  out  to  the  public  credit- 
ors, and  gone  into  circulation  as  a  currency  among  the  peo- 
ple. The  amount  of  gold  and  silver  coin  now  in  circulation 
in  the  country  is  larger  than  at  any  former  period, 

"  The  financial  system  established  by  the  constitutional 
treasury  has  been  thus  far  eminently  successful  in  its  oper- 
ation, and  I  recommend  an  adherence  to  its  essential  provi- 
sions, and  especially  to  that  vital  provision  which  wholly 
separates  the  Government  from  all  connection  with  the 
banks,  and  excludes  all  bank  paper  from  all  revenue  re- 
ceipts." 

The  above  exposition  of  the  financial  policies  that  have 
been  inflicted  upon  the  country  is  so  monstrous  that  it  is 
difficult  to  believe  that  it  is  true,  and  that  a  Democratic  presi- 
dent dispassionately  recommended  an  adherence  to  it.  An 
analysis  of  the  propositions  discloses  that  a  paternal  Govern- 


The  Panic  of  1847  287 

ment,  because  of  its  incapacity  to  devise  a  pure  financial 
system,  and  because  the  system  of  national  and  State  banks 
had  been  imjioscd  upon  it  by  a  subservient  Congress  and  a 
still  more  subservient  judiciary,  virtually  stated  that  it  pro- 
posed to  fight  the  war  with  Mexico,  and  run  the  Govern- 
ment while  so  doing  with  gold  and  silver.  To  that  end  it 
would  separate  its  affairs  from  the  affairs  of  the  banks, 
and  consequently  of  the  people ;  though  the  people  must  fur- 
nish the  soldiers,  must  furnish  gold  and  silver  to  clothe,  sup- 
port, and  arm  the  soldiers,  whether  there  was  enough  in  tlie 
country  or  not. 

The  Government,  it  appears,  decided  it  had  nothing  to 
do  with  supplying  the  people  with  a  circulating  currency ; 
but,  on  the  contrary,  after  discrediting  the  money  which  it 
had  permitted  the  State  banks  to  issue,  it  demanded  the  pay- 
ment of  all  taxes  and  dues  in  gold  and  silver  coin.  This 
forced  the  people  to  make  importations  from  Europe  to 
protect  their  property  from  the  Government  tax-collector 
regardless  of  the  sacrifice  imposed. 

In  the  light  of  such  Democratic  legislation, —  forcing 
into  the  practise  of  the  Government  the  unholy  and  inhu- 
man principles  that  the  Massachusetts  financiers  incorpor- 
ated into  the  Constitution. —  it  should  not  be  cause  for  won- 
der that  the  branch  of  the  property-rights  party  known  as 
Gold  Democrats  should  claim  that  they  are  Simon  pure,  and 
Bryanism  is  spurious  and  false. 

The  following  from  the  president's  fourth  annual  mes- 
sage, dated  December  5,  1848,  speaks  volumes  for  the  thrift, 
economy,  and  energy  of  the  people :  — 

"  During  the  present  year  nearly  the  whole  continent  of 
Europe  has  been  convulsed  by  civil  war  and  revolutions, 
attended  by  numerous  bankruptcies,  by  an  unprecedented 
fall  in  their  public  securities,  and  an  almost  universal  par- 


288  The  Legal-Tender  Problem 

alysis  of  commerce  and  industry;  and  yet,  although  our 
trade  and  the  prices  of  our  products  must  have  been  some- 
what" unfavorably  affected  by  these  causes,  we  have  escaped 
a  revulsion,  our  money  market  is  comparatively  easy,  and 
public  and  private  credits  have  advanced  and  improved. 

"  It  is  confidently  believed  that  we  have  been  saved  from 
their  effect  by  the  salutary  operations  of  the  constitutional 
treasury.  It  is  certain  that  if  twenty-four  millions  of  specie, 
imported  in  the  fiscal  year  ending  on  the  30th  of  June,  1B47, 
had  gone  into  the  banks,  as  to  a  great  extent  it  must  have 
done,  it  would  in  the  absence  of  this  system  have  been  made 
the  basis  of  augmented  bank  paper  issues,  probably  to  an 
amount  not  less  than  $60,000,000  or  $70,000,000,  producing 
as  an  inevitable  consequence  of  an  inflated  currency,  extrav- 
agant prices  for  a  time  and  wild  speculation,  which  must 
have  been  followed,  on  the  reflux  to  Europe  the  succeeding 
year  of  so  much  of  that  specie,  by  the  prostration  of  the 
business  of  the  country,  the  suspension  of  the  bank,  and  most 
extensive  bankruptcies." 

Properly  analyzed,  this  Democratic  president  virtually 
said :  A  Democratic  Congress,  with  my  approval  and  assist- 
ance, has  made  the  gold  and  silver  of  the  money  faction  so 
valuable  in  its  use  in  this  country,  that  none  of  it  leaves ; 
but,  on  the  contrary,  the  constitutional  treasury  and  the  war 
with  Mexico  has  made  such  a  demand  for  it  that  the  people 
have  been  forced  to  purchase  twenty-four  millions  from 
Europe.  The  use  that  was  made  of  it  over  here  was  so 
much  more  profitable  than  could  be  made  of  it  in  Europe, 
notwithstanding  it  was  "  convulsed  by  civil  war,"  that  it 
all  remained  here.  Of  course  the  profit  that  the  owners  of 
the  gold  and  silver  makes,  comes  out  of  the  people  in  the 
decreased  price  they  received  for  their  product,  whether  sold 
here  or  in  Europe,  but  that  is  no  concern  of  the  Government. 


The  Panic  of  1847  289 

Whether  the  people  sent  forty-eight  milHons  or  more 
of  products  to  Europe  to  get  twenty-four  millions  of  specie 
to  pay  taxes  and  expenses,  was  not  considered  by  the  admin- 
istration ;  nor  whether  they  had  to  send  forty-eight  millions 
of  products  each  year  to  retain  that  twenty-four  millions 
of  specie,  did  not  seem  to  concern  the  president.  He  seems 
to  have  only  been  interested  in  providing  for  the  collection 
of  enough  revenue  to  defray  the  expenses  of  the  Govern- 
ment, regardless  of  the  distress  and  suffering  visited  upon 
the  people  by  the  method  adopted. 

These  must  have  been  the  halcyon  days  of  the  hard- 
money  faction ;  for  they  were  reaping  a  full  crop  from  the 
seed  sown  when  they  framed  the  Constitution  so  as  to  read 
that  no  State  should  make  anything  a  legal  tender  but  gold 
and  silver,  nor  emit  bills  of  credit,  and  withheld  from  Con- 
gress the  power  to  emit  bills  on  the  credit  of  the  United 
States,  as  full  legal  tenders. 


XXXIII 

The  Beginning  of  the  Change  of  the  Government 
from  a  Republic  to  an  Empire 

The  cause  that  is  tending  to  change  this  Government 
from  a  repubHc  to  an  empire  is  the  construction  of  the  Con- 
stitution that  bestows  legal-tender  value  exclusively  upon 
gold  and  silver ;  and  the  agencies  through  which  it  is  being 
so  successfully  carried  forward  are  the  manipulation  of  the 
legal-tender  value,  a  high  protective  tariff,  corporate 
agencies,  and  the  avarice  that  is  now  expressed  in  the  cry 
of  Christian  Commercialism. 

It  is  strange  that  a  Democratic  president  could  compre- 
hend and  express  so  lucidly,  as  did  Mr.  Polk,  the  trend  of 
the  purposes  of  the  property-rights  party  subsequent  to  1815, 
and  yet  fail  to  appreciate  that  the  success  of  the  movement 
was  due  to  the  exploitation  encouraged  by  the  heresy  en- 
grafted upon  the  Constitution  and  the  manipulation  of  the 
value  of  legal  tender  in  the  practical  application  of  the 
heresy  to  the  finances  of  the  country. 

The  failure  of  the  Democratic  party  to  detect  this  fallacy, 
its  failure  to  detect  that  its  enforcement  was  necessary  to 
insure  the  success  of  the  abuses  that  tend  so  strongly  to 
change  the  republic  to  an  empire,  has  caused  it  to  waste  its 
energies  in  preserving  the  source  of  the  evils  while  vainly 
resisting  their  onward  flow. 

This  is  evidenced  in  the  administration  of  President 
Polk,  which  issued  bonds  instead  of  treasury  notes;  de- 
manded that  all  money  paid  into  the  treasury  should  be  gold 
290 


From  a  Republic  to  an  Empire  291 

and  silver,  and  thereby  forced  the  people  to  purchase  from 
the  owners  of  sjiecie  a  sufficient  sum  for  the  Government  to 
wage  the  war  with  Mexico. 

This  preservation  of  the  source  of  all  our  governmental 
evils  has  been  one  of  the  cardinal  principles  of  the  party  in 
all  the  battles  of  the  past,  and  though  in  late  years  the  force 
of  the  motives  that  for  so  long  a  time  caused  gold  and  silver 
to  be  regarded  as  sacred  has,  in  the  demonetization  of  sil- 
ver, set  aside  and  derided  the  Constitution,  the  Democratic 
party  still  clings  to  the  old  fallacy  in  its  war-cry  for  silver 
at    16   to    I. 

Appreciating  intensely  the  condition  of  the  country,  but 
unconscious  of  the  provoking  cause  therefor,  President  Polk 
set  forth  the  situation,  as  he  understood  it,  as  a  justification 
for  his  financial  policy.  In  his  message  of  December  5,  1848, 
Vol.  4,  page  654,  he  said  :  — ■ 

"  The  present  condition  of  the  country  is  similar  in  some 
respects  to  that  which  existed  immediately  after  the  close  of 
the  war  with  Great  Britain  in  181 5,  and  the  occasion  is 
deemed  to  be  a  proper  one  to  take  a  retrospect  of  the  meas- 
ures of  the  public  policy  which  followed  that  war. 

"  There  was  at  that  period  of  our  history  a  departure 
from  our  earlier  policy.  The  enlargement  of  the  powers  of 
the  Federal  Government  by  construction  which  obtained, 
was  not  warranted  by  any  just  interpretation  of  the  Con- 
stitution. A  few  years  after  the  close  of  the  war,  a  series  of 
measures  was  adopted  which,  united  and  combined,  con- 
stituted what  was  termed  by  their  authors  and  advocates  the 
American  System.  .  .  ■. 

"  Ihe  authors  of  the  system  drew  their  ideas  of  political 
economy  from  what  the\'  had  witnessed  in  Europe,  and  par- 
ticularly in  Great  Britain.  They  had  viewed  the  enormous 
wealth  concentrated  in  few  hands,  and  had  seen  the  splen- 


292  The  Leffal-Tender  Problem 

dor  of  the  overgrown  establishments  of  an  aristocracy  which 
was  upheld  by  the  restrictive  policy.  .  .  .  They  failed  to 
perceive  that  the  scantily  fed  and  half-clothed  operatives 
were  not  only  in  abject  poverty  but  were  bound  in  chains  of 
oppressive  servitude  for  the  benefit  of  favored  classes  who 
were  exclusive  objects  of  the  care  of  the  Government.  .  .  . 

"A  system  of  measures  was  therefore  devised,  calculated, 
if  not  intended,  to  withdraw  pOwer  gradually  and  silently 
from  the  States  and  the  mass  of  the  people,  and  by  construc- 
tion to  approximate  our  Government  to  the  European  mod- 
els, substituting  an  aristocracy  of  wealth  for  that  of  orders 
and  titles.  .  .  .  They  conceived  the  vain  idea  of  building 
up  in  the  United  States  a  system  similar  to  that  which  they 
admired  abroad. 

"  Great  Britain  had  a  national  bank  of  large  capital,  in 
whose  hands  was  concentrated  the  controlling  monetary 
and  financial  power  of  the  nation, —  an  institution  wielding 
almost  kingly  power,  and  exerting  vast  influences  upon  all 
the  operations  of  trade  and  upon  the  policy  of  the  Govern- 
ment itself.  Great  Britain  had  an  enormous  public  debt, 
and  it  had  become  a  part  of  her  public  policy  to  regard  this 
as  a  public  blessing.  .  .  .  Great  Britain  had  also  a  restrict- 
ive policy,  which  placed  fetters  and  burdens  on  trade  and 
trammeled  the  productive  industry  of  the  mass  of  the  na- 
tion. .  .  . 

"  Imitating  this  foreign  policy,  the  first  step  in  establish- 
ing the  new  system  in  the  United  States  was  the  creation  of 
a  national  bank.  .  .  .  But  the  bank  was  but  one  branch  of 
the  new  system.  A  public  debt  of  more  than  $120,000,000 
existed ;  and  it  is  not  to  be  disguised  that  many  of  the 
authors  of  the  new  system  did  not  regard  its  speedy  pay- 
ment as  essential  to  the  public  prosperity,  but  looked  upon 
its  continuance  as  no  national  evil.  .  .  .  While  the  debt  ex- 


From  a  Republic  to  an  Empire  293 

isted,  it  furnished  aliment  to  tlie  national  bank,  and  rendered  ^ 
increased  taxation  necessary.  .  .  .  This  operated  in  har- 
mony with  the  next  branch  of  the  new  system,  which  was  a 
high  protective  tariff.  This  was  to  afford  bounties  to  fa- 
vored classes  and  to  particular  pursuits  at  the  expense  of 
all  others. 

"A  proposition  to  tax  the  whole  people  for  the  purpose 
of  enriching  a  few  was  too  monstrous  to  be  openly  made. 
The  scheme  was  therefore  veiled  under  the  plausible  but 
delusive  pretext  of  a  measure  to  protect  home  industry ;  and 
many  of  our  people  were  for  a  time  led  to  believe  that  a  tax 
which  in  the  main  fell  upon  labor,  was  for  the  benefit  of  the 
laborer  who  paid  it.  .  .  . 

"  The  effect  of  this  policy  was  to  interpose  artificial  re- 
strictions upon  the  natural  course  of  the  business  and  trade 
of  the  country,  and  to  advance  the  interests  of  large  capital- 
ists and  monopolists  at  the  expense  of  the  great  mass  of  the 
people  who  were  taxed  to  increase  their  wealth. 

"Another  branch  of  this  system  was  a  comprehensive 
scheme  of  internal  improvements,  capable  of  infinite  enlarge- 
ments, and  sufficient  to  swallow  up  as  many  millions  annu- 
ally as  could  be  exacted  from  the  foreign  commerce  of  the 
country.  .  .  .  This  was  convenient,  and  a  necessary  adjunct 
of  the  protective  tariff.  .  .  . 

"  These  several  measures  were  sustained  by  popular 
names  and  plausible  arguments  by  which  thousands  were  de- 
luded. The  bank  was  represented  to  be  an  indispensable 
fiscal  agent  for  the  Government ;  was  to  equalize  exchanges, 
and  to  regulate  and  furnish  a  sound  currency  always  and 
everywhere  of  uniform  value.  The  protective  tariff  w-as  to 
give  employment  to  American  labor  at  advanced  prices ;  was 
to  protect  home  industry,  and  furnish  a  steady  market  for 
the  farmer.    Internal  improvements  were  to  bring  trade  into 


294  The  Legal-Tender  Problem 

every  neighborhood,  and  enhance  the  value  of  every  man's 
property.  .  .  .  But  the  fact  that  for  every  dollar  taken  out 
of  the  treasury  for  these  objects,  a  much  larger  sum  was 
transferred  from  the  pockets  of  the  people  to  the  favored 
classes,  was  carefully  concealed,  as  was  also  the  tendency, 
if  not  the  ultimate  design,  of  the  system  to  build  up  an  aris- 
tocracy of  wealth,  to  control  the  masses  of  society,,  and  mon- 
opolize the  political  power  of  the  country.  .  .  . 

"  In  this  manner  the  whole  form  and  character  of  the 
Government  would  be  changed ;  not  by  an  amendment  of 
the  Constitution,  but  by  resorting  to  an  unwarrantable  and 
unauthorized  construction  of  that  instrument." 

The  foregoing  is  such  an  able  exposition  of  the  tend- 
ency of  the  property-right  principles,  that  it  is  not  easy 
to  comprehend  why  the  president  could  not  understand  Mr. 
Jeflferson's  theory  of  issuing  treasury  notes  "  bottomed  on 
taxes,"  and  that  the  value  of  legal  tender  was  a  property 
right  held  in  trust  by  the  Government  for  the  benefit  of  the 
people. 

The  ignoring  of  this  Democratic  method,  the  approval 
of  the  sale  of  bonds,  and  the  restriction  of  the  money  of 
the  country  to  gold  and  silver,  can  only  be  accounted  for 
upon  the  ground  of  an  undue  regard  for  the  fallacy  which 
the  Massachusetts  financiers  engrafted  upon  the  Constitu- 
tion, and  which  the  property-right  members  of  the  Demo- 
cratic party  in  the  East  have  always  advocated. 

The  adoption  and  practise  of  Whig  policies  by  a  Demo- 
cratic administration  worked  such  hardship  upon  the  peo- 
ple in  forcing  them  to  buy  European  specie  to  keep  out  of 
the  hands  of  the  tax-collectors,  that  in  the  canvass  of  1848 
they  elected  Gen.  Zachary  Taylor  and  Millard  Fillmore 
president  and  vice-president,  and  the  Whigs  were  again 
placed  in  power. 


XXXIV 

The   Administrations    of   Presidents    Taylor   and 

Fillmore 

The  financial  policy  of  the  administration  is  shown  in 
the  first  annual  message  of  President  Taylor,  dated  Decem- 
ber 4,  1849,  P^g^  ^7'  ^"  ^^^^  following:  — 

"  The  receipts  into  the  treasury  for  the  fiscal  year  ending 
on  the  30th  of  June  last  were,  in  cash,  $48,830,097.50,  and 
in  treasury  notes  funded,  $10,833,000." 

The  policy  inaugurated  by  the  Democratic  administration 
of  retiring  the  treasury  notes  as  fast  as  they  were  received 
into  the  treasury,  was  most  willingly  followed  by  the  Whig 
administration,  for  the  reason  that  it  took  the  treasury 
notes  out  of  competition  with  gold  and  silver,  reduced  the 
volume  of  money,  decreased  the  price  of  all  products,  and 
forced  the  issue  of  interest-bearing  bonds. 

On  the  same  page,  the  message,  after  stating  that  there 
would  probably  be  a  deficit  of  $16,375,314.30  on  the  first 
of  July,  1 85 1,  recommended  that  a  sufficient  sum  be  bor- 
rowed to  cover  that  deficit.  If  a  Democratic  administration, 
ignoring  the  teachings  of  Mr.  Jefferson,  the  experience  of 
the  country  in  the  issuance  of  treasury  notes,  and  the  sug- 
gestions of  President  Jackson.  ])ut  into  practise  a  policy  that 
created  a  deficit,  it  should  not  be  cause  of  surprise  that  a 
Whig  president  took  advantage  of  it,  and  recommended  the 
borrowing  of  money. 

The  loan  was  not  made,  however,  for  the  reason  that  in 
1849,   1S5O'  ^^^  ^^5^   ^^^^  volume  of  the  currency  was  so 

295 


296  The  Legal-Tender  Problem 

largely  increased  by  the  gold  from  California,  and  the  en- 
larged business  and  increased  prosperity  of  the  people  was 
such,  that  the  collection  of  revenue  disproved  the  estimates, 
and  there  was  no  deficit. 

The  death  of  President  Taylor  on  July  9,  1850,  made  the 
vice-president,  Millard  Fillmore,  president ;  and  in  his  first 
annual  message,  dated  December  2,  1850,  page  83,  he  states 
that  "  the  total  receipts  in  the  treasury  for  the  year  ending 
the  30th  of  June  last  were  $47,421,748.90.  The  total  ex- 
penditures during  the  same  period  were  $43,002,168.90. 
The  public  debt  has  been  reduced  since  the  last  annual  report 
from  the  treasury  department  $495,276.79.  Aside  from  the 
permanent  annual  expenditures,  which  have  necessarily 
largely  increased,  a  portion  of  the  public  debt,  amounting 
to  $8,075,986.50,  must  be  provided  for  within  the  next  two 
fiscal  years.  It  is  most  desirable  that  these  accruing  de- 
mands should  be  met  without  resorting  to  new  loans." 

The  effect  upon  the  prosperity  of  the  people  of  an  en- 
larged and  increasing  volume  of  basic  money  is  still  more 
apparent  from  the  second  annual  message  of  President  Fill- 
more, dated  Dec.  2,  1851,  page  122:  — 

"  By  reference  to  the  report  of  the  secretary  of  the  treas- 
ury, it  will  be  seen  that  the  aggregate  receipts  for  the  last 
fiscal  year  amounted  to  $52,312,970.87,  which,  with  the  bal- 
ance in  the  treasury  on  the  first  of  July,  1850,  gave  as  the 
available  means  for  the  year  the  sum  of  $58,917,324.36.  The 
total  expenditures  for  the  same  period  were  $48,005,878.68. 
The  public  debt  on  the  20th  ultimo,  exclusive  of  the  stock 
authorized  to  be  issued  to  Texas  by  the  act  of  the  9th  of 
September,  1850,  was  $62,560,395.26." 

The  estimated  amount  of  cash  at  the  disposal  of  the 
Government  during  the  next  fiscal  year  was  $63,258,734.09, 
and    the    estimated    expenditures,    $42,892,299.19,    leaving 


Taylor  and  Fillmore  Administrations      297 

a  net  balance  of  $20,366,443.90  to  be  used  in  payment  of 
the  debt.  From  this  it  is  evident  that  the  increase  of  the 
voknvie  of  money  enabled  the  peoi)le,  by  large  importations 
and  enlarged  business,  to  pay  into  the  treasury  sufficient 
revenue  to  defray  the  expenses  of  the  Government,  aad 
leave  a  suri)lus  which  would  soon  pay  the  national  debt ;  and 
yet  the  president,  in  his  message,  page  124,  makes  this 
startling  statement :  — 

"  The  production  of  gold  in  California  for  the  past  year 
seems  to  promise  a  large  supply  of  that  metal  from  that 
quarter  for  some  time  to  come.  This  large  annual  increase 
of  the  currency  of  the  world  must  be  attended  with  its  usual 
results.  These  have  been  already  partially  disclosed  in  the 
enhancement  of  prices  and  rising  spirit  of  speculation  and 
adventure,  tending  to  overtrading  as  well  at  home  as 
abroad.  Unless  some  salutary  check  shall  be  given  to  these 
tendencies,  it  is  to  be  feared  that  importations  of  foreign 
goods  beyond  a  health}-  demand  in  this  country  will  lead  to 
a  sudden  drain  of  the  precious  metals  from  us,  bringing  with 
it,  as  it  has  done  in  former  times,  the  most  disastrous  conse- 
quences to  the  business  and  capital  of  the  American  people. 

"  The  exports  of  specie  to  liquidate  our  foreign  debt  dur- 
ing the  past  fiscal  year  have  been  $24,263,970  over  the 
amount  of  specie  imported.  The  exports  of  specie  during 
the  first  quarter  of  the  present  fiscal  year  have  been  $14,651,- 
827.  Should  the  specie  continue  to  be  exported  at  this  rate 
for  the  remaining  three  quarters  of  this  year,  it  will  drain 
from  our  metallic  currency  during  the  year  ending  June  30, 
1852,  the  enormous  amount  of  $58,607,308." 

What  is  this  financial  condition  of  which  the  president 
has  such  forebodings? 

It  will  be  recalled  that  Mr.  Crawford  stated  that,  untd  a 
metallic  currencv  was   reached,  there  could  and   would  be 


298  The  Legal-Tender  Problem 

no  safety  nor  certainty  in  the  financial  system ;  and  in  reach- 
ing this  desired  condition,  admitted  that,  "  until  the  engage- 
ments existing  at  the  moment  of  such  a  change  are  dis- 
charged, and  the  price  of  labor  and  of  commodities  is  re- 
duced to  the  proportion  which  it  must  bear  to  the  quantity 
of  currency  employed  as  the  medium  of  their  exchange,  en- 
terprise of  every  kind  will  be  repressed,  and  misery  and  dis- 
tress universally  prevail." 

The  policy  of  the  Government  had  been  in  accord  with 
this  teaching :  treasury  notes  had  been  retired ;  State-bank 
notes  were  not  accepted  by  the  Government ;  all  banks  were 
forced  to  resume  specie  payments ;  the  Government  refused 
to  receive  the  payment  of  its  taxes  and  dues  in  anything 
but  gold  and  silver.  This  had  been  carried  to  such  an  ex- 
tremity that  the  people  were  forced  to  import  large  sums  of 
specie  to  keep  their  property  out  of  the  hands  of  the  tax  col- 
lectors. They  had  sold  their  products  at  reduced  prices  in 
Europe,  first  to  get  the  specie,  and  then  continued  to  sell 
their  products  at  still  lower  prices  in  order  to  keep  the  specie 
here,  and  in  many  instances  went  into  debt  in  order  to 
secure  the  necessary  amount. 

In  the  language  of  Mr.  Crawford,  "  Enterprise  of  every 
kind  had  been  repressed,  and  misery  and  distress  had  uni- 
versally prevailed ;  the  price  of  labor  and  of  commodities 
had  been  reduced ;  "  and  he  might  have  added,  debts  had 
been  contracted  by  the  people  in  adjusting  their  business  to 
the  reduced  volume  of  a  metallic  money. 

It  would  be  natural  to  suppose  that  since  the  policy  of 
the  Government  had  forced  the  people  to  undergo  the  dis- 
tress and  loss  of  property  which  is  ever  attendant  on  the 
destruction  of  all  credit  currency  and  the  adoption  of  a  pure 
metallic  money,  any  increase  in  the  volume  of  this  metallic 
money  would  rightfully  and  justly  inure  to  the  benefit  of 
the  people  and  the  debtors. 


Taylor  and  Fillmore  Aduiinistrations      299 

It  is  evident  that  the  increase  of  the  voUime  of  metalhc 
money  cheapened  the  value  of  legal-tender  money ;  this 
necessarily  enhanced  the  value  of  products,  and  enlarged 
the  ability  of  the  debtor  to  pay  his  debts.  As  this  supply  of 
gold  from  California  enlarged  the  volume  of  metallic  money, 
the  banks  were  encouraged  to  issue  notes,  and  the  people 
were  enabled  to  expand  their  business.  They,  therefore, 
paid  more  taxes  to  the  Government,  liquidated  their  debts, 
and  were  then  enabled  to  improve  their  homes,  import  lux- 
uries, and  enjoy  the  fruits  of  a  prosperity  which  ever  accom- 
panies an  increased  supply  of  money. 

But  according  to  the  views  of  the  property-rights  presi- 
dent, these  evidences  of  healthful  prosperity  were  only  "  in- 
dications of  a  rising  spirit  of  speculation  and  adventure, 
tending  to  overtrading,  as  well  at  home  as  abroad ;  and  un- 
less some  salutary  checks  be  given  to  these  tendencies,  it  is 
to  be  feared  that  the  importations  of  foreign  goods  beyond 
a  healthy  demand  in  this  country  will  lead  to  a  sudden  drain 
of  the  precious  metals  from  us,  bringing  with  it,  as  it  has 
done  in  former  times,  the  most  disastrous  consequences  to 
the  business  and  capital  of  the  American  people." 

This  was  the  veriest  presidential  nonsense.  Heretofore 
it  had  been  claimed  that  specie  left  and  panics  came  because 
of  the  expansion  of  credits  through  the  issue  of  bank-notes 
and  treasury  notes ;  and  it  had  been  claimed  that  there  was 
no  cure  for  this  evil  except  the  entire  finances  of  the  country 
be  placed  on  a  metallic  base. 

Though  the  destruction  of  all  this  credit  currency  in 
going  to  a  metallic  base  would  cause  great  loss  of  values,  it 
had  been  further  claimed  that  it  was  in  accord  with  the 
highest  wisdom  and  purest  principles  of  finance ;  because 
when  once  accomplished,  and  society  was  adjusted  to  the 
change,  ''  the  new  basis  will  be  equitable  and  just,  and  tend 
to  promote  and  secure  the  general  prosperity." 


300  The  Le^al-Tender  Problem 

That  the  people  would  be  forced  to  sell  their  products  at 
reduced  prices,  and  borrow  specie  from  Europe  in  order  to 
keep  their  property  out  of  the  hands  of  the  tax  collectors, 
did  not  concern  the  hard-money  faction,  for  that  was  the 
condition  of  affairs  they  intended  to  create  when  they  estab- 
lished the  metallic  base,  knowing  full  well  this  would  in- 
crease their  fortunes. 

The  pitiless  fonduct  of  the  Government,  at  the  instance 
of  that  faction,  had  made  life  so  unbearable  and  desperate 
that  it  produced  an  effect  zvJiich  had  not  been  contemplated. 
When  it  was  realized  by  the  people  that  the  ownership  of 
their  property,  and  in  many  instances  the  very  existence  of 
themselves  and  families,  depended  upon  securing  the  pre- 
cious metals,  many  a  man  abandoned  wife,  child,  and  home 
to  seek  for  the  "  money  "  metals  in  the  wilds  of  the  far 
West.  Their  quest  was  so  tense  and  deadly  that,  though 
they  whitened  a  pathway  across  the  great  Western  prairie 
with  their  bleaching  bones,  they  never  ceased  the  search 
until  they  found  what  they  sought  in  the  hills  and  valleys 
of  California.  In  the  vast  amount  found  there,  they  secured 
the  only  means  of  relief  left  to  them  by  the  policy  of  the 
Government. 

Notwithstanding  it  was  well  understood  that  this  great 
influx  of  the  precious  metals  would  so  cheapen  money  that 
the  debtors  could  pay  all  taxes  and  debts,  and  thus  save 
their  property ;  and  notwithstanding  it  was  well  understood 
that  the  increase  in  the  volume  of  metallic  money  protected 
the  debtors  from  a  contemplated  robbery  by  the  creditors, 
yet,  inasmuch  as  the  people  had  accepted  the  situation 
forced  upon  them,  and  at  great  sacrifice  turned  it  to  their 
profit,  they  had  the  right  to  enjoy  the  fruits  of  their  toil 
and  sacrifice  won  under  the  changed  conditions. 

This  they  were  doing  by  improving  their  farms,  paying 


Taylor  and  Fillmore  Administrations      301 

the  foreign  debt  of  gold,  and  indulging  some  foreign  lux- 
uries, when  the  shipments  of  gold  to  Europe  were  deemed 
sufficient  to  justify  a  president  in  stating  that  a  spirit  of 
speculation  and  adventure  had  been  produced  by  the  influx 
of  gold,  and  "  unless  some  salutary  check  should  be  given  to 
these  tendencies,  it  was  to  be  feared  that  importations  of 
foreign  goods  beyond  a  healthy  demand  would  lead  to  a 
sudden  drain  of  the  precious  metals  from  the  country,  bring- 
ing with  it  the  most  disastrous  consequences." 

It  seems  evident  that  the  president  was  influenced  to 
make  this  observation  because  he  was  the  tool  of  the  cap- 
italists and  creditors.  If  he  was  correct  in  his  fears,  it 
demonstrated  the  inefficiency  of  the  system  which  had  been 
foisted  upon  the  country ;  for  if  enough  specie  could  not 
be  retained  to  conduct  the  volume  of  business,  no  higher 
proof  could  be  had  of  the  falsity  of  the  theory  which 
adopted  it. 

This  large  addition  of  gold  to  the  volume  cheapened  the 
gold  coin  to  such  an  extent  that  all  the  silver  was  carried 
to  Europe,  where  it  secured  its  full  value  when  coined  into 
legal-tender   money. 

Notwithstanding  the  use  which  was  made  of  the  sub- 
sidiary silver  coins,  they  were  fast  leaving  also.  Some  action 
had  to  be  taken  to  secure  to  the  people  the  use  of  the  small 
silver  coins,  and  on  February  21,  1853,  Congress  passed  an 
act  reducing  the  weight  of  silver  in  the  half-dollar,  quarter- 
dollar,  dime,  and  half-dime  to  192  grains  for  the  half-dollar, 
and  the  others  proportionately,  and  also  providing  that  said 
coins  should  be  legal  tender  for  only  five  dollars. 

Congress  intended  to  make  the  subsidiary  silver  coins 
equal  to  or  less  in  value  than  the  cheaper  gold  coins,  thereby 
removing  the  inducement  to  export  them,  it  having,  in 
the  act  of  March  8,   1849,  authorized  the  coinage  of  gold 


302  The  Legal-Tender  Problem 

dollars  to  take  the  place  of  the  disappearing  silver  dollars. 
It  is  apparent,  then,  that  though  the  "  word  "  dollar,  when 
used  in  the  United  States,  meant  371/4  grains  of  silver, 
yet  the  dollar  in  which  payments  were  made  was  the  cheaper 
gold  dollar,  and  in  the  settlement  of  contracts  the  payer 
was  getting  the  advantage. 

This  condition  of  the  finances,  always  of  advantage  to 
debtors,  and  encouraging  to  the  people,  is  most  galling  to 
capitalists  and  creditors,  even  when,  as  in  this  instance,  it 
was  the  result  of  their  greedy  legislation,  and  they  never 
rest  until  they  have  reversed  it  and  secured  the  advantage. 

The  increase  of  the  volume  had  the  effect  of  stimulating 
the  business  of  the  country ;  and  as  it  expanded,  it  generated 
a  necessity  for  enlarged  credits  to  carry  it  forward.  This 
growing  prosperity  resulted  from  an  increasing  volume  of 
the  currency ;  but,  as  heretofore  explained,  the  antagonism 
between  the  methods  of  conducting  business  by  the  "  credit 
system"  (whereby  the  larger  transactions  are  promoted), 
and  by  cash  and  credit  (whereby  the  retail  trades  are  con 
ducted),  is  always  fatal  to  both  when  they  are  carried  on 
by  the  same  credit  money  that  has  a  dual  reliance  on  gold 
and  silver.  Therefore  when  President  Fillmore  realized 
that  the  exports  of  gold  exceeded  the  imports,  knowing  that 
all  these  credits  were  redeemable  in  gold  on  demand,  he  had 
forebodings  as  to  the  ability  of  the  country  to  redeem 'the 
credits,  and  suggested  that  there  should  be  a  check  against 
what  he  was  pleased  to  term  the  tendency  toward  speculation 
on  the  part  of  the  people. 

It  is  a  queer  financial  system  that  causes  the  surest  evi- 
dences of  progress  among  the  people  to  be  regarded  as 
something  to  be  checked  in  its  tendency.  It  is  strange  he 
could  not  understand  that  it  was  an  increasing  volume  of 


Taylor  and  Fillmore  Administrations      303 

basic  money  which  was  bringing  all  these  blessings  to  the 
people,  and  that  the  dangers  which  he  feared  were  caused  by 
the  governmental  abuse  of  making  all  these  credits  redeem- 
able in  specie. 

Notwithstanding  this  fear  that  there  would  not  be 
enough  specie  retained  to  redeem  these  credits.  Congress, 
on  February  21.  1857,  during  the  administration  of  Mr. 
Buchanan,  passed  an  act  "  that  all  former  acts  authorizing 
the  currency  of  foreign  gold  or  silver  coins,  and  declaring 
the  same  a  legal  tender  in  payment  for  debts,  are  hereby 
repealed." 

This  foreign  gold  and  silver  coin  was  chiefly  used  as 
bank  reserves.  So  soon,  however,  as  it  was  demonetized, 
it  was  no  longer  available  for  that  purpose,  but  was  shipped 
to  Europe,  and  specie  was  drawn  out  of  the  channels  of 
trade  to  take  its  place.  The  act  of  1853  depriving  subsidiary 
silver  coins,  in  sums  over  five  dollars,  of  the  quality  of  legal 
tender,  caused  the  banks  to  cease  the  use  of  this  coinage  as 
reserves.  In  addition,  the  distress  of  the  Bank  of  England 
forced  it  to  sell  about  $7,000,000  of  American  securities  in 
the  United  States  for  gold.  These  things  were  deemed  suffi- 
cient excuse  for  the  designing  (i.  c.,  those  who  induced  the 
conditions)  seemingly  to  take  the  alarm,  and  demand  pav- 
ment  of  their  debts  in  specie.  This  precipitated  the  panic 
of  1857,  which  occasioned  the  loss  of  from  $500,000,000  to 
$1,000,000,000,  reduced  hundreds  of  thousands  to  a  state 
of  dependence,  and  forced  the  suspension  of  all  the  banks. 

A  Democratic  administration,  under  the  leadership  of  a 
Pennsylvania  president,  was  influenced  to  pass  legislation 
which  took  from  the  people  all  the  advantage  thev  had 
gained  bv  their  sacrifices  and  loss  of  life  in  securine  ffold 
from   California.      Tt   had   not   onlv  .done   this,   but   it    had 


304  The  Le^al-Tender  Problem 

accomplished  it  in  a  way,  and  so  effectually,  that  the  gold 
from  California  which  should  have  been  a  blessing  was 
turned  into  the  most  frightful  curse  of  the  century. 

Under  the  legislative  manipulation  of  the  issue  of  money 
by  that  administration,  the  capitalists  and  creditors  were 
made  so  wealthy  that  they  took  the  control  of  the  Govern- 
ment from  the  South,  as  will  hereafter  be  shown ;  and  the 
people  were  so  impoverished  that  chattel  slavery  was  de- 
stroyed, and  there  was  substituted  in  its  stead  industrial 
slavery.  The  distress  was  so  general  that  some  relief  had 
to  be  given ;  therefore  an  act  of  Congress,  December  26,. 
1857,  authorized  the  issue  of  $20,000,000  in  treasury  notes, 
not  to  bear  over  six  per  cent  interest,  but  to  be  redeemed 
in  one  year  from  the  date  of  the  notes,  if  the  distress  of  the 
country  would  permit;  if  not,  authority  was  given  to  reissue 
such  notes  as  were  redeemed  until  the  first  of  January,  1859. 

The  reissue  of  these  notes  seems  to  have  continued  be- 
yond the  time  authorized ;  for  on  June  22,  i860.  Congress 
authorized  a  loan  providing  for  the  redemption  of  treasury 
notes  by  the  sale  of  bonds  not  exceeding  $20,000,000.  On 
December  17,  i860.  Congress  authorized  the  issue  of  $10,- 
000,000  in  treasury  notes  to  be  redeemed  one  year  from  date 
of  issue,  with  power  to  reissue  any  of  said  notes  until  Jan- 
uary  I,   1863. 

This  issue  followed  the  panic  of  i860,  during  which 
there  were  six  thousand  business  failures.  The  issues  of 
banks  that  were  based  upon  the  bonds  of  the  Southern  States 
became  jeopardized  and  uncertain  in  value,  and  in  this  con- 
traction of  the  currency  the  failures  were  inevitable. 

The  circulation  at  this  time  consisted  of  a  limited  num- 
ber of  gold  and  silver  coins  (which  were  being  fast  with- 
drawn), the  outstanding  treasury  notes,  and  the  issues  of 
some  fifteen  hundred  State  banks. 


XXXV 

President  Lincoln's  Administration,  and  the 
Financial  Method  Attempted 

Notwithstanding  the  imminence  of  war,  and  the  great 
need  there  would  be  for  currency  if  war  should  be  declared, 
Congress,  on  February  8,  1861,  authorized  the  issue  and  sale 
of  $25,000,000  in  six-per-cent  bonds,  to  run  not  less  than  ten 
nor  more  than  twenty  years.  The  proceeds  of  this  sale 
were  to  be  used  to  pay  the  current  demands  on  the  treasury 
and  to  redeem  the  treasury  notes  outstanding. 

It  appears  that  of  this  issue  only  $18,415,000  could  be 
disposed  of,  and  that  at  an  average  discount  of  10.97  per 
cent;  therefore,  on  March  2,  1861,  Congress  authorized  the 
sale  of  $10,000,000  in  six-per-cent  bonds,  if  the  bonds  could 
be  sold  at  par ;  and  if  not,  the  president  was  authorized  to 
issue  in  their  stead  treasury  notes,  in  denominations  of  not 
less  than  fifty  dollars,  bearing  six  per  cent  interest. 

The  president  was  further  authorized,  "  under  like  con- 
ditions, to  issue  treasury  notes  for  the  whole  or  any  of  the 
loans  for  which  he  is  now  by  law  authorized  to  contract  and 
issue  bonds."  The  proceeds  arising  from  these  bonds  were 
to  be  used  to  pay  appropriations  and  redeem  outstanding 
treasury  notes.  The  bonds  could  not  be  placed,  and  treas- 
ury notes  had  to  be  issued.  The  amount  issued  was  $35,- 
364,450,  which  was  sold  at  rates  ranging  from  par  to  $1.27. 

It  is  noticeable  that  at  this  time  a  six-per-cent  bond 
which  could  not  be  sold  at  par,  when  offered  as  a  six-per- 
20  305 


3o6  The  Legal-Tender  Problem 

cent  circulating  currency,  sold,  as  these  notes  did,  for  a 
premium.  It  only  illustrates  the  contention  heretofore  made 
that  the  trading  and  commercial  people,  in  their  intense 
need  for  mediums  of  payment,  will  pay  more  for  interest-  or 
non-interest-bearing  treasury  notes,  when  they  can  be  used 
as  currency,  than  the  capitalists  and  bankers  will  pay  for 
interest-bearing  bonds. 

Though  these  treasury  notes  were  not  legal  tender  for 
the  payment  of  private  debts,  they  were  for  the  payment  of 
all  debts  due  the  Government ;  and  it  was  due  to  this,  and 
not  to  the  fact  they  were  payable  in  specie,  that  they  sold 
for  a  premium. 

The  issue  was  far  in  excess  of  the  amount  contemplated, 
because  of  the  commencement  of  the  Civil  war  within  a  few 
weeks  after  the  passage  of  the  bill.  It  is  in  such  periods 
that  the  capitalists  and  investors  refuse  to  exchange  their 
gold  and  silver  for  bonds,  and  the  Government  is  only  able 
to  secure  such  quantities  of  specie  as  are  in  the  hands  of  the 
trading  and  commercial  people,  who  are  ever  willing  to 
exchange  all  they  have  for  legal-tender  treasury  notes  that 
can  be  used  as  mediums  of  payment. 

The  financial  truth  —  demonstrated  in  the  issuance  and 
sale  of  these  notes  —  that  they  were  more  valuable  because 
far  more  serviceable,  both  to  the  people  and  to  the  Govern- 
ment, than  bonds,  has  always  escaped  the  observation  of, 
and  has  never  been  appreciated  by,  the  wisdom  of  the  offi- 
cials of  the  Government. 

President  Lincoln  was  inaugurated  March  4,  1861,  and 
the  exigencies  occasioned  by  the  war  were  such  that  he 
called  an  extra  session  of  Congress  to  meet  July  4,  1861. 

On  July  17,  1861,  Congress  passed  an  act  which  in  its 
first  section  reads  as  follows :  "  That  the  secretary  of  the 
treasury  be,  and  hereby  is,  authorized  to  borrow  on  the  credit 


Lincoln's  Financial  Method  I07 

of  the  United  States,  within  twelve  months  from  the  pas- 
sage of  this' act,  a  sum  not  exceeding  $250,000,000,  ...  for 
which  he  is  authorized  to  issue  coupon  bonds,  or  registered 
honds,  or  treasury  notes  in  such  proportions  of  each  as  he 
may  deem  advisable ;  the  bonds  to  bear  interest  not  exceed- 
ing seven  per  cent  per  annum,  payable  semi-annually,  irre- 
deemable for  twenty  years;  .  .  .  and  the  treasury  notes  to 
be  of  any  denomination  fixed  by  the  secretary  of  the  treasury 
not  less  than  fifty  dollars,  and  to  be  payable  in  three  years 
from  date,  with  interest  at  the  rate  of  seven  and  three-tenths 
per  cent  per  annum,  payable  semi-annually.  And  the  secre- 
tary of  the  treasury  may  also  issue  in  exchange  for  coin, 
and  as  part  of  the  above  loan,  or  may  pay  for  salaries  or 
other  dues  from  the  United  States  treasury,  notes  of  a  less 
denomination  than  fifty  dollars,  not  bearing  interest,  but 
payable  on  demand,  ...  or  treasury  notes  bearing  interest 
at  the  rate  of  3.65  per  cent  per  annum,  payable  in  one  year 
from  date,  and  exchangeable  at  any  time  for  treasury  notes 
for  fifty  dollars  and  upwards ;  .  .  .  provided  that  no  treas- 
ury note  shall  be  issued  of  a  less  denomination  than  ten 
dollars,  and  that  the  whole  amount  of  treasury  notes,  not 
bearing   interest,  .  .  .  shall  aiot   exceed  $50,000,000." 

Under  this  act  $50,000,000  of  the  seven-per-cent  bonds 
were  sold  at  a  discount  of  10.97  per  cent.  The  $50,000,000 
demand  notes  were  sold  for  par.  The  patriotism  of  the 
banks  was  shown  in  the  fact  that  only  the  associated  banks 
of  Boston,  Philadelphia,  and  New  York  rendered  any  assist- 
ance whatever  to  the  Government,  and  they  only  made  a 
temporary  loan  for  five  months  of  $50,000,000,  taking  the 
treasury  notes,  bearing  seven  and  three-tenths  per  cent  inter- 
est, at  par,  as  collateral. 

An  eflfort  was  made  to  remedy  these  defects,  and  enable 
the  Government  to  raise  the  necessary  money,  in  the  act 


3o8  The  Le^al-Tender  Problem 

passed  August  5,  1861.  By  its  terms  the  secretary  of  the 
treasury  was  authorized  to  issue  six-per-cent  bonds,  payable 
at  the  pleasure  of  the  Government  after  twenty  years,  in 
exchange  for  the  treasury  notes  bearing  seven  and  three- 
tenths  per  cent  interest,  issued  under  the  act  of  July  17,  1861. 

It  further  provided  that  the  demand  notes  should  be 
receivable  in  payment  of  all  public  dues,  thereby  making 
them  legal  tenders  for  all  debts  due  the  Government ;  and 
that  they  should  be  issued  in  denominations  of  five  dollars 
and  upwards  to  fifty  dollars. 

It  further  provided  that  six-per-cent  bonds  might  be  sold 
for  not  less  than  par,  to  the  amount  authorized  of  seven- 
per-cent  bonds  in  the  act  of  July  17,  186 1.  It  also  suspended 
the  provisions  of  the  act  of  August  6,  1846,  so  as  to  enable 
"  the  secretary  of  the  treasury  to  deposit  any  of  the  moneys 
obtained  or  any  of  the  loans  now  authorized  by  law,  in  such 
solvent  specie-paying  banks  as  he  might  select,  said  money 
to  be  checked  out  at  will  to  defray  the  expenses  of  the  Gov- 
ernment or  in  redemption  of  treasury  notes." 

It  appears  that  of  the  $250,000,000  in  bonds  authorized 
to  be  issued  under  these  two  acts,  $50,000,000  of  the  seven- 
per-cents  was  issued,  as  heretofore  stated,  at  a  discount  of 
10.97  per  cent,  and  $139,321,350  of  the  six-per-cents  at  par 
in  the  years  following  in  taking  up  the  seven  and  three- 
tenths  per  cent  treasury  notes. 

It  will  be  recalled  that  under  the  influence  of  Mr.  Jeflfer- 
son.  Congress,  on  February  24,  1815,  authorized  the  issue 
of  non-interest-bearing,  legal-tender  notes  in  small  denom- 
inations, redeemable  only  in  six-  and  seven-per-cent  stock, 
and  that  they  proved  so  efficient  and  serviceable,  as  cur- 
rency, that  they  could  not  be  secured  by  the  bankers  to  be 
surrendered  and  canceled. 

It  will  be  further  recalled  that  their  circulation,  in  com- 


Lincoln's  Financial  Method  3^9 

petition  witli  the  notes  of  the  Bank  of  the  United  States, 
aroused  the  open  antagonism  of  that  bank,  ami  it  refused 
to  receive  them  because  they  were  not  a  legal  tender  for 
private,  as  well  as  jiublic,  debts. 

It  will  be  further  recalled  that  the  Bank  of  the  United 
States  paid  $1,500,000  for  the  monopoly  of  issuing  its  notes 
for  twenty  years,  on  the  condition  that  the  Government 
should  retire  its  notes  from  circulation,  which  it  attcm[)ted 
to  do  by  refusing  to  receive  them  in  payment  of  import  dues. 

It  will  also  be  recalled  that  Judge  Mason  stoi)ped  this 
iniquitous  ruling  of  the  treasury,  and  the  Government  there- 
upon repealed  the  law  which  authorized  their  reissue,  and 
thus  gradually  withdrew  them   from  circulation. 

These  notes  were  different  from  the  demand  notes  in 
only  one  particular ;  both  were  non-interest-bearing,  both 
were  issued  in  the  smaller  denominations,  both  were  receiv- 
able in  the  payment  of  all  public  dues,  both  were  issued  to 
circulate  as  currency,  and  were  to  be  reissued  as  often  as 
received  into  the  treasury,  until  they  were  presented  for 
redemption,  when,  and  not  before,  they  were  to  be  can- 
celed, and  retired   from  circulation. 

The  notes  of  181 5  were  not  to  be  canceled  until  they  were 
exchanged  for  six-  and  seven-per-cent  stock :  the  demand 
notes  were  not  to  be  canceled  until  thc\'  were  presented  and 
exchanged  for  coin.  The  provision  for  their  redemption 
was  the  only  difference  in  the  issues.  Their  experience  was 
very  similar, —  both  were  so  efficient  and  serviceable  to  the 
trading  and  commercial  people,  and  were  regarded  as  so 
much  safer  than  bank-notes,  and  were  so  much  more  con- 
venient to  handle  than  coin,  that  it  was  impossible  for  the 
bankers  to  secure  them  to  be  surrendered ;  and  if  the  Gov- 
ernment, at  the  instigation  of  the  bankers  (who  surrendered 
them  as  they  happened  to  get  possession  of  them),  had  not 


3IO  The  Le^al-Tender  Problem 

forced  their  retirement,  they  would  be  in  circulation  to  this 
hour.  They  were  worth  so  much  more  as  mediums  of  pay- 
ment than  as  six-  or  seven-per-cent  stock,  or  as  coin,  that 
it  never  would  have  occurred  to  the  people  to  commit  the 
suicidal  act  of  surrendering  them  for  cancelation.  On  the 
contrary,  those  engaged  in  trade  and  commerce  have  always 
been  willing  to  purchase  and  use  them,  if  they  are  made  full 
legal  tenders.  The  bankers  always  endeavor  to  keep  the 
Government  from  issuing  them,  and  have  controlled  its 
action,  except  in  the  few  instances  of  war,  when  the  crisis 
was  such  that  Congress  acted  without  separately  consider- 
ing the  bankers  and  their  alleged  constitutional  claims. 

In  1815  the  bankers  were  as  willing  to  pay  the  Govern- 
ment to  take  its  treasurv  notes  out  of  circulation  as  the 
people  were  to  purchase  them  for  use  as  mediums  of  pay- 
ment; hence  by  an  offer  of  $1,500,000,  the  bank  of  the 
United  States  bought  the  monopoly  of  issuing  notes  for 
twenty  years,  upon  the  agreement  that  the  Government 
would  withdraw  its  notes  from  circulation. 

In  the  excitement  of  the  summer  of  1861,  and  the  first 
months  of  1862,  Congress  acted  without  consulting  the  coin 
owners  and  bankers,  and  sold  $50,000,000  in  non-interest- 
bearing  demand  notes  to  the  soldiers  and  contractors  for 
services  in  the  field,  supplies,  and  armaments.  The  effi- 
ciency in  use  and  the  ready  acceptance  of  these  demand 
notes  at  and  over  their  par  value,  constrasted  with  the  slow- 
ness and  difficulty  of  selling  the  bonds,  caused  the  act  of 
February  12,  1862,  authorizing  the  additional  $10,000^000 
in  demand  notes  to  be  issued.  It  was  evident,  as  the  neces- 
sity for  more  money  would  appear  as  the  war  progressed, 
that  the  same  ready  acceptance  at  par  and  efficiency  in  use 
would  cause  their  exclusive  issue  to  an  amount  which  might 
be  needed  to  conduct  the  war  to  a  successful  termination. 


Lincoln's  Financial  Method  311 

The  necessity  for  the  issue  of  legal-tender  treasury  notes 
was  imperative.  A  hostile  army  was  about  to  invade  the 
portion  of  the  Union  that  was  still  intact.  The  State  banks 
had  suspended  specie  payment ;  at  least  the  Government 
could  secure  no  more  coin  from  them.  The  loyalty  and 
patriotism  of  the  people,  in  their  effort  to  assist  the  Gover- 
mcnt  with  money,  had  been  exhausted  in  the  $1 39-32 1.350 
advanced  in  specie.  The  balance  of  the  specie  had  deserted 
the  fortunes  of  the  Government,  and  did  not  care  to  exer- 
cise its  claimed  constitutional  right,  in  the  emergency. 

Luther  Martin's  prediction  that  if  the  power  to  emit 
bills  of  credit  was  withheld  from  Congress,  the  time  would 
come  when  the  Constitution  would  have  to  be  violated  and 
the  treasury  notes  issued  to  bu\-  the  means  of  defense,  was 
again  verified.  If  it  is  admitted  that  the  Government,  as  a 
sovereignty,  was  under  the  necessity  of  issuing  treasury 
notes  to  preserve  its  existence,  then  it  follows  that  it  un- 
doubtedly  had  that  right;  and  if  it  had  the  right,  born  of 
the  necessity,  then  it  logically  follows  that  it  had  the  power, 
notwithstanding  it  had  been  attempted  in  the  Constitutional 
Convention  to  withhold  the  exercise  of  that  power  from 
Congress. 

If  the  United  States,  as  a  sovereign  nation,  had  the 
power  and  right,  and  was  under  the  necessity  of  issuing  its 
notes,  then  the  notes  should  have  been  issued  in  accordance 
with  this  sovereign  power,  and  in  a  manner  that  would  most 
efficiently  serve  the  purpose  for  which  they  were  needed, 
and  be  of  the  greatest  benefit  to  the  people  and  the  country ; 
and  not  in  accordance  with  the  contention  of  the  coin  own- 
ers and  bankers  that  they  must  be  so  issued  as  to  cause  the 
least  temporary  interference  with  their  alleged  claim  of 
the  constitutional  right  to  supply  the  money  of  the  country. 

The  act  of  July  17  was  an  amendatory  act,  intended  to 


312  The  Le^al-Tender  Problem 

remedy  the  defects  in  the  previous  acts.  The  demand  notes 
were  accepted  so  readily  that  the  Government  decided  to 
make  them  receivable  for  all  payments  due  it.  Endowed 
with  the  quality  of  legal  tender  to  this  extent,  they  were  so 
generally  received  and  so  acceptable  in  use  to  all  classes  ex- 
cept the  bankers  that  the  hostility  of  the  bankers  could  not 
aflfect  the  value  or  use  of  the  notes :  on  February  25,  1862, 
the  additional  $10,000,000  consequently  was  issued. 

This  action  of  Congress  alarmed  the  gold  and  silver 
owners  and  the  bankers.  They  realized  that  the  practical 
experiments  of  President  Lincoln  had  thus  early  taught  that 
the  success  of  the  war  was  dependent  upon  the  assistance 
and  proper  use  of  the  value  of  legal  tender. 


XXXVI 

The  Conspiracy  of  the  Bankers 

The/ bankers  realized  with  intense  dread  that  President 
Lincoln  appreciated  the  efficiency  and  "  value  in  use  "  of  the 
non-interest-bearing  legal-tender  demand  notes,  that  there 
would  be  no  inclination  on  the  part  of  the  people  to  present 
them  for  redemption  so  long  as  they  could  be  used  for  cur- 
rency, and  that  the  president  intended  in  great  measure 
to  issue  them  to  bear  the  expenses  of  the  war. 

It  was  realized  that  if  they  should  be  used  during  the 
period  of  the  war,  their  efficiency,  as  mediums  of  payment, 
and  the  fact  that  they  were  better  than  bank-notes  and  more 
convenient  to  handle  than  gold  and  silver  coins,  would  com- 
mend them  so  highly  that  they  would  never  be  presented 
for  redemption,  but  would  continue  indefinitely  in  circula- 
tion. 

It  was  realized  that  this  war,  and  the  manner  in  which 
the  practical  wisdom  of  President  Lincoln  was  managing 
the  finances,  was  fast  demonstrating  to  the  intelligence  of 
the  people  generally  that  the  constitutional  guarantee  that 
the  money  of  the  country  should  be  limited  to  gold  and  sil- 
ver, and  that  Congress  had  no  power  or  right  to  issue  treas- 
ury notes,  was  unscientific,  and  a  governmental  error. 

The  bankers  realized  that  they  were  in  danger  of  losing 
their  claimed  constitutional  right  to  the  monopoly  of  legal- 
tender  value  in  the  exclusive  use  of  their  gold  and  silver, 
enlarged  as  it  had  been  by  the  two  unconstitutional  deci- 
sions of  the  Supreme  Court  in   favor  of  the   Rank  of  the 

313 


314  The  Legal-Tender  Problem 

United  States  and  the  State  banks.  Under  the  influence 
of  these  fears,  they  conspired  to  assemble  at  Washington, 
and  so  impede  legislation  —  notwithstanding  its  urgency 
on  account  of  the  war  —  that  they  would  force  a  change 
from  the  financial  method  adopted  by  President  Lincoln  to 
one  of  their  own,  solely  in  their  interest. 

They  succeeded  in  their  conspiracy,  and  corruptly  in- 
duced Congress  to  adopt  their  plan  in  the  act  of  February 
26,  1862.  The  first  section  of  this  act  provided  for  the 
issue  of  $150,000,000  of  non-interest-bearing  treasury  notes 
in  denominations  not  les»  than  five  dollars.  $50,000,000  of 
the  above  was  set  aside  to  take  up  as  rapidly  as  practicable 
the  demand  notes. 

This  issue  of  notes  was  made  receivable  only  in  pay- 
ment of  all  taxes,  internal  duties,  excises,  debts,  and  de- 
mands of  every  kind  due  the  United  States,  except  duties 
on  imports,  and  of  all  claims  and  demands  against  the  United 
States,  except  for  interest  upon  bonds  and  notes  which  shall 
be  paid  in  coin,  and  shall  also  be  lazvfnl  money  and  a  legal 
tender  in  payment  of  all  debts  public  and  private,  except 
duties  on  imports  and  interest  on  bonds  and  notes. 

Inasmuch  as  the  demand  notes  could  be  used  to  pay  dues 
on  imports,  it  was  important  that  they  should  be  retired 
from  circulation.  Knowing  that  the  people  would  not  pre- 
sent them  for  redemption,  and  that  they  would  be  so  inces- 
santly used  that  the  bankers  could  not  secure  them  to  be 
presented,  the  act  provided  that  the  secretary  of  the  treasury 
must  cancel  the  notes  as  fast  as  they  were  paid  into  the 
treasury. 

Under  the  provisions  of  the  act,  after  the  demand  notes 
should  be  retired  from  circulation,  import  dues  could  be  paid 
in  coin  only,  and  this  coin  was  to  be  used  to  pay  the  interest 
on  the  Government  bonds.    It  is  evident  that  the  coins  never 


The  Conspiracy  of  the  Bankers  315 

passed  from  under  the  control  of  the  caprtahsts,  for  though 
they  were  sold  to  the  importers  to  pay  import  duties,  it  was 
with  the  knowledge  that  they  would  be  paid  back  to  them 
as  interest  on  Government  bonds  which  they  owned. 

This  arrangement  made  the  Government  notes  the  money 
of  the  people,  limited  in  legal  tender  as  they  were,  and  the 
full  legal-tender  coins,  the  money  of  the  capitalists.  The 
people  could  use  the  treasury  notes  in  payment  of  all  de- 
mands due  the  Government  except  dues  on  imports,  and 
'the  Government  could  use  them  in  all  payments  except  inter- 
est on  the  bonds.  But  whenever" the  people  needed  coins 
to  pay  dues  on  imports,  they  were  forced  to  buy  them.  This 
necessity  imposed  upon  the  people  by  act  of  Congress, 
disparaging  its  own  issues,  gave  the  coin  owners  an  undue 
advantage,  and  they  availed  themselves  of  it,  and  forced 
the  coins  to  a  premium.  The  extent  of  the  premium  was 
limited  to,  and  determined  only  by,  the  ability  of  the  coin 
owners  to  combine  and  control  the  coins.  The  result  was 
that  the  gold  coins,  the  cheaper  of  the  two  metals,  and  there- 
fore the  standards  of  payment  at  that  time,  commanded  a 
premium  over  the  United  States  notes  of  $1.50  to  $2.85 
through  a  number  of  years. 

The  act  further  provided  that  the  treasury  notes  should 
have  the  right  to  be  exchanged  at  par  for  5-20  bonds,  pay- 
able in  lawful  money,  bearing  six  per  cent  interest,  payable 
semi-annually  in  coin ;  and  it  was  further  provided  that  the 
notes  should  be  reissued  as  often  as  exchanged. 

Section  2  provided  for  the  issue  of  $500,000,000  of  the 
six-per-cent  5-20  bonds  for  the  purpose  above  set  forth  and 
to  fund  the  floating  debt.  These  bonds  were  also  exempt 
from  State  taxation. 

Section  4  provided  that  any  person  may  deposit  with  the 
secretary  of  the  treasury,  for  not  less  than  thirty  days.  United 


3i6  The  Le^al-Tender  Problem 

States  notes  in  sums  not  less  than  $ioo,  the  total  not  to  ex- 
ceed $25,000,000,  and  receive  therefor  from  said  secretary 
a  certificate  of  deposit,  bearing  interest  at  the  rate  of  five  per 
cent  per  annum,  with  the  right  to  withdraw  said  notes  upon 
ten  days'  notice.  The  secretary  was  authorized  to  stop  the 
interest  on  said  certificate  at  any  time. 

Section  5  provided  "  that  all  duties  on  imported  goods 
shall  be  paid  in  coin,  or  in  notes  payable  on  demand  hereto- 
fore authorized  to  be  issued,  and  by  law  receivable  in  pay- 
ment of  all  public  dues." 

The  legal-tender  quality  given  the  demand  notes  in  the 
act  of  August  5,  1861,  this  act,  and  the  act  of  March  17, 
1862,  gave  them  the  right  to  be  used  in  payment  of  private 
as  well  as  public  debts,  and  put  them  in  every  respect  on  an 
equal  footing  with  coins  ;  and  it  is  not  surprising  that  they 
remained  of  equal  value,  and  commanded  the  same  premium 
over  the  "  exception  clause  "  notes  that  the  gold  coins  did. 

No  higher  evidence  of  the  value  of  legal  tender,  when 
bestowed  on  paper  or  metals,  can  be  shown  than  was  demon- 
strated in  the  experience  of  the  demand  notes,  and  that  was 
the  reason  why  the  act  provided  that  they  should  be  can- 
celed as  fast  as  received  into  the  treasury.  Once  out  of  the 
way,  and  the  "  exception  clause  "  notes  issued  in  their  stead, 
the  coin  owners  would  have  no  rival  in  the  sale  of  their 
coins  to  those  who  had  to  pay  dues  on  imported  goods. 

It  will  not  do  to  contend  that  the  demand  notes  kept  of 
equal  value  with  the  coins  solely  because  they  could  be  ex- 
changed for  them  at  the  treasury,  and  that  they  owed  no 
part  of  their  value  to  the  legal-tender  quality.  If  that  had 
been  so,  it  would  not  have  been  so  imperative  to  provide  for 
their  retirement  in  the  act  of  February  25,  1862.  This  could 
have  been  done  by  the  coin  owners  and  bankers  gathering 
and  presenting  them  to  the  treasury.    That  is  the  one  thing 


The  Conspiracy  of  the  Bankers  3'7 

the  coin  owners  and  bankers  can  not  do  with  that  kind  of 
Government  notes,  for  they  are  used  by  the  people  in  prefer- 
ence to  bank-notes  and  coins,  and  are  kept  in  circulation 
while  the  bank-notes  and  coins  are  deposited  in  the  banks. 
It  is  well  known  and  appreciated,  by  none  more  than  the 
bankers,  that  if  the  Government  does  not  deprive  such  notes 
of  legal  tender,  they  defy  all  effort  of  the  coin  owners  and 
bankers  to  get  hold  of  them  and  surrender  them  for  can- 
celation. 

Under  the  influence  of  this  band  of  bank  conspirators, 
Congress  was  induced,  in  spite  of  the  resistance  of  Presi- 
dent Lincoln  and  other  patriots,  to  abandon  the  scheme 
of  finance  that  was  best  for  the  interests  of  the  country,  and 
which  was  in  accordance  with  its  sovereign  power  and  right, 
as  taught  by  Jefferson,  advocated  by  Jackson,  approved  by 
Lincoln,  and  since  upheld  by  the  Supreme  Court,  and  was 
forced  instead  to  adopt  the  method  drawn  up  by  the  bankers 
and  coin  owners  solely  in  their  interest  and  to  the  peril  of 
the  existence  of  the  country  as  a  republic. 

That  this  could  be  done  over  the  resistance  of  President 
Lincoln,  Senator  Thad.  Stevens,  and  other?;  who,  amid  the 
terrible  excitement  then  existing,  rendered  able  assistance, 
was  not  so  much  due  to  the  bribery  of  Congressmen  and 
Senators  —  though  many  succumbed  to  that  influence  —  as 
to  the  moral  effect  of  the  undetected  fallacy  in  the  construc- 
tion given  the  Constitution,  that  only  gold  and  silver  could 
be  legal-tender  money,  and  the  generally  accepted  idea, 
under  the  two  bank  decisions  of  the  Supreme  Court,  that  it 
was  an  infringement  upon  the  bank's  rights  for  the  Govern- 
ment to  issue  its  notes,  except  by  permission  of  the  bank- 
ers and  coin  owners,  and  then  only  temporarily  and  in  such 
manner  as  they  should  prescribe. 

The  iniquities  incorporated  into  the  Constitution  by  the 


3i8  The  Legal-Tender  Problem 

Alassachusetts  school  of  finance,  and  fastened  upon  the  pol- 
icies of  the  Government  by  the  Supreme  Court,  have  borne 
their  deadly  fruit  in  every  crisis.  The  moral  effect  and 
influence  of  the  construction  given  the  Constitution,  and 
the  deference  paid  the  decision  of  the  Supreme  Court  in 
the  bank  cases,  greatly  strengthened  the  contention  of  the 
conspirators,  and  accounts  in  great  part  for  their  victory 
over  President  Lincoln.  Strengthened  by  these  considera- 
tions, the  iniquities,  aided  as  they  have  been  by  the  grow- 
ing and  formidable  capacity  to  bribe,  corrupt,  and  destroy 
—  due  to  their  observance,  enforcement,  and  practise  —  have 
become  almost  irresistible,  and  impossible  of  correction. 

The  resistance  to  the  passage  of  the  act  was  desperate 
on  the  part  of  those  who  realized  what  was  being  done, 
as  is  evidenced  in  the  conduct  and  remarks  of  Senator  Thad. 
Stevens  at  the  time,  and  afterwards.  He  said,  "  I  have  a 
melancholy  foreboding  that  we  are  about  to  consummate  a 
cunningly  devised  scheme  which  will  carry  great  injury  and 
great  loss  to  all  classes  of  people  throughout  this  Union. 
,  ,  .  There  was  a  doleful  sound  came  up  from  the  caverns 
of  the  bullion  brokers,  and  from  the  saloons^irf  the  associated 
banks.  ...  It  [Congress]  now  creates  money,  and  by  its 
very  terms  declares  it  a  depreciated  currency.  It  makes 
two  classes  of  money;  one  for  the  banks  and  brokers,  and 
another  for  the  people." 

Speaking  afterward,  he  said,  "  Yes,  we  had  to  yield. 
The  Senate  was  stubborn.  We  did  not  yield,  however,  until 
we  found  that  the  country  must  he  lost  or  the  hankers 
gratified;  and  we  sought  to  save  the  country,  in  spite  of  the 
cupidity  of  its  wealthier  citizens.  When,  a  few  years  hence, 
the  people  shall  have  been  brought  to  general  bankruptcy, 
I  shall  have  the  satisfaction  of  knowing  that  I  attempted  to 
prevent  it." 


XXXVII 

The  Negro  in  Finance 

It  is  an  anomaly  that  in  the  history  of  the  war  between 
the  States,  no  intelligent  reason  for  the  necessity  of  that 
fratricidal  contest  has  been  given  general  acceptance.  The 
South  claimed,  and  its  writers  still  contend,  it  resisted  be- 
cause it  realized  that  the  abolition  element  in  the  East  had 
determined  upon  the  freedom  of  the  slaves.  The  East  and 
the  North  answered  that  President  Lincoln's  administration 
was  not  committed  to  such  a  policy,  and  that  the  institution 
of  slavery  would  be  respected  and  protected. 

They  have  further  contended  that  if  it  had  become  neces- 
sary to  abolish  slavery  to  preserve  the  republic,  it  could 
have  been  done  peaceably  and  with  due  regard  for  the 
property  rights  of  the  South  in  the  slaves.  In  substantia- 
tion they  establish,— 

First,  that  they  offered  terms  of  peace  at  the  beginning 
of  the  war  upon  condition  that  slavery  should  continue,  as 
an  institution  of  the  country,  in  those  States  where  it  already 
existed,  but  should  not  be  extended  to  other  or  the  new 
States. 

Second,  that  in  the  midst  of  the  struggle,  President  Lin- 
coln assumed  the  responsibility  of  offering  peace  upon  the 
condition  that  the  slaves  should  be  paid  for. 

This  second  offer  was  made  after  he  ascertained  that 
the  motives  dominating  the  capitalists  of  the  East  would 
undermine  the  foundations  of  the  republic ;  and,  in  his  fear 
for  its  future,  he  deemed  it  wiser  and  better  to  end  the  war 

319 


320  The  Legal-Tender  Problem 

by  paying  for  the  slaves  than  to  permit  it  to  continue  at  the 
fearful  cost  of  the  immense  debt  that  was  being  incurred. 

He  realized  only  too  keenly  the  abuses  that  were,  in  the 
name  of  patriotism,  being  committed,  and  fastened  upon  the 
country  in  the  financial  conduct  of  the  war,  and  had  forebo- 
dings for  its  future  under  the  further  abuses  that  this  same 
vampire  spirit  of  financial  hypocrisy  could  and  would  per- 
petrate in  the  manipulation  and  payment  of  the  debt.  He 
therefore  thought  it  better  and  wiser  to  ofifer  said  terms  of 
peace,  in  the  hope  that  he  would  stop,  not  only  the  unneces- 
sary sacrifice  of  life,  but  what  was  still  far  more  important 
to  his  far-seeing  vision,  put  an  end  to  the  probability  of  the 
destruction  of  the  republic  by  the  knavish  capitalists  who 
had  assumed  charge  of  its  finances  over  his  opposition. 

Neither  of  the  foregoing  propositions  were  acceptable  to 
the  leaders  of  the  Southern  people ;  for  while  they  had  only 
the  conviction  of  moral  certainty  that  it  was  a  contest  to 
the  death,  they  did  not  have  a  correct  conception  of  the 
underlying  and  controlling  cause  that  was  firing  the  East- 
ern soul  and  sustaining  its  energies. 

Though  there  has  been  no  intelligent  exposition,  so  far 
as  the  writer  has  observed,  of  the  controlling  cause  of  the 
war,  the  South  was  correct  and  true  to  its  interests  in  its 
conclusion  that  it  was  to  free  the  negro,  but  not  from  the 
motives  ascribed  to  the  abolitionists. 

So  convincingly  did  the  South  entertain  the  conviction, 
and  so  well  assured  were  its  leaders  that  the  freedom  of  the 
slaves  would  cause  their  overthrow  in  the  control  of  the 
Government,  that  they  turned  a  deaf  ear  to  all  overtures  of 
peace,  and  elected  to  struggle  until  manhood  was  exhausted 
before  it  would  surrender,  if  surrender  it  must.  The  des- 
peration of  the  Southern  leaders  confounded  President  Lin- 
coln.    He  was  helpless  in  the  management  of  the  finances, 


The  Negro   in  Finance  321 

with  Conj^ress  in  the  hands  of,  and  completely  dominated  by, 
the  financiers  and  capitalists  of  the  North  and  East.  He 
could  not  reach  the  reason  of  the  leaders  of  the  South,  and 
was  consequently  compelled  to  remain  at  the  helm  and  see 
the  country  drift  to  plutocracy,  praying  that  his  fears  might 
not  be  realized. 

The  unconscious  cerebration  of  the  Southern  leaders 
controlled  the  action  of  that  section.  They  realized  that  a 
postponement  was  only  a  palliative,  and  decided  that  the 
issue  must  be  finally  settled  then  and  forever.  They  were 
sub-consciously  conscious  that  there  was  no  escape  from 
the  issue,  but  it  was  the  irony  of  fate  that  they  precipitated 
the  conflict  in  such  profound  unconsciousness  of  the  true 
source  of  the  motives  of  the  East  that  they  adopted  in  the 
management  of  their  finances  the  identical  fallacy  which 
the  East  had  forced  upon  the  country,  the  resultant  effects 
of  which  they  were  making  such  formidable  preparation 
to  resist. 

The  peace  party  of  the  North  was  in  the  same  woful 
condition,  and  it  is  doubtful  if  any,  except  a  few  of  the  cap- 
italists, were  aware  of  the  true  motives  that  were  domina- 
ting the  movement  which  was  to  work  such  a  change  in  so 
short  a  time  in  the  warp  and  woof  of  the  entire  structure 
of  the  Government.  It  is  certain  that  the  abolitionists,  who 
were  not  recognized  as  a  factor  in  the  policies  of  the  Gov- 
ernment at  the  beginning  of  the  war,  had  no  appreciation 
of  what  was  being  carried  forward,  though  their  insane 
fanaticism  was  the  resultant  of  the  agencies  employed,  their 
agitation  the  expression  of  the  only  sentiment  that  could  be 
openly  advocated,  while  their  motives  were  blessed  and 
sanctified  as  from  God  himself,  by  the  designing. 

In  elucidation  of  the  foregoing,  it  is  only  necessary  to 
state  that  it  is  the  accepted  history  of  the  country  that  the 


322  The  Le^al-Tender  Problem 

same  vicious  greed  of  the  East  which  has  dominated  our 
finances,  orisrinallv  introduced  chattel  slaves  into  this  coun- 
try.  •  That  sublime  and  overmastering  Christian  love  of 
humanity  that  the  East  is  ever  so  ready  to  put  forward  as 
a  cloak  to  cover  its  avarice,  induced  its  inhabitants  at  the 
earliest  period  of  our  history,  to  traffic  in  human  flesh,  and 
despoil  humanity  of  its  birthright. 

While  they  were  preparing  the  souls  of  the  heathen  for 
heaven,  they  hoped  to  make  out  of  the  toil  of  their  bodies 
sufficient  wealth  for  their  descendants  to  carry  forward  the 
humane  work  with  fire,  sword,  and  bottle,  under  the  guise 
of  Christian  commercialism,  to  all  the  heathen  of  the  earth. 
The  motive  was  pure  and  honest  enough  in  its  active  expres- 
sion for  the  morality  of  the  East;  and  the  plan,  as  orig- 
inated, would  have  been  carried  on  and  maintained  until 
to-day,  if  the  profit  had  turned  up  on  the  right  side  of  the 
balance  sheet. 

The  East  soon  realized  that  there  was  no  profit  in  chat- 
tel slavery,  and  it  thereupon  induced  the  South  to  try  the 
experiment,  with  the  purpose,  if  it  should  prove  profitable, 
to  dispose  of  its  slaves  to  the  Southern  people,  and  to  have 
them  assume  the  obligations  of  their  humane  work.  It  took 
some  time  for  the  East  to  make  the  experiment,  ascertain 
that  there  was  no  profit  in  chattel  slavery,  and  dispose  of 
their  slaves  to  the  South  for  a  fair  consideration. 

While  this  was  taking  place  nothing  was  said  of  the 
inhumanity  of  slavery,  and  their  preachers  were  appointed 
to  the  sacred  task  of  proving  that  slavery  was  a  divine  insti- 
tution. It  was  during  this  interval  that  the  Constitution  of 
the  country  was  framed,  and  the  institution  was  recognized 
in  that  instrument,  though  the  words  "  slave  or  slavery  " 
were  kept  out  of  it  by  the  Eastern  capitalists,  with  the  inten- 
tion,   should    it   ever   become   necessary   to   subserve   their 


The  Negro   in  Finance  323 

interest,  to  abolish  it.  The  East  did  not  give  up  chattel 
slavery  until  it  had  demonstrated  that  there  was  no  profit 
in  it,  and  had  satisfied  itself  that  industrial  slavery  could 
be  exploited  to  much  greater  advantage. 

The  substitution  of  industrial  for  chattel  slavery  was 
made  easy  and  profitable  for  the  East,  for  the  reason  that 
chattel  slavery  proved  so  profitable  in  the  South.  Under 
such  circumstances  the  change  in  the  East,  and  the  transfer 
of  the  slaves  to  the  South,  was  so  welcome  to  both  sections, 
that  no  one  saw  the  inhumanity  of  slavery,  and  it  is  notice- 
able that  the  immorality  of  slavery  did  not. make  its  appear- 
ance in  the  sentiment  of  any  portion  of  the  country  until 
the  labor  of  the  slaves  began  to  afifect  injuriously  the  pocket- 
books  of  the  East.  And  it  is  equally  noticeable  that  the 
growth  of  the  sentiment  in  the  sympathies  of  the  Eastern 
people  kept  pace  with  the  growth  of  the  advantage  that  the 
Southern  people  acquired  from  the  use  of  slave  labor. 

The  East  had  no  appreciation  of  the  efifect  that  the 
transfer  of  the  slaves  would  have  upon  the  sections  in  ma- 
king money  and  in  the  control  of  the  Government.  If  it 
had,  it  is  reasonable  to  suppose  that  the  intensity  of  the  sen- 
timent that  would  cause  the  death  of  so  many  people  to 
abolish  slavery,  would  have  made  some  less  objectionable 
disposition  of  the  slaves  in  the  first  instance.  It  is  certain 
that  the  slaves  would  never  have  become  the  property  of 
the  South  and  recognized  as  such  by  the  Constitution,  if 
a  correct  idea  had  been  entertained  of  the  detriment  it  would 
prove  to  the  interests  of  Eastern  capital. 

The  transfer  of  the  slaves  and  their  recognition  by  the 
Constitution  as  property,  operated  so  advantageously  to  the 
interest  of  the  South,  and  so  detrimentally  to  the  interest  of 
the  East,  that,  as  it  became  more  active,  it  became  too  griev- 
ous to  the  money-making  propensity  of  the  East  to  be  tol- 


324  The  Legal-Tender  Problem 

erated.  Hence  the  East  decided  to  abolish  the  institution. 
The  adaptabiUty  of  the  slaves  to  the  South,  and  their  fruitful 
increase,  made  their  ownership  so  profitable  that  it  caused 
the  creation  of  that  degree  of  wealthy  intelligence  which 
generated  the  masterful  element  that  was  known  throughout 
the  world  of  civilization  as  the  Southern  planter. 

The  intelligence  in  all  the  affairs  of  life,  and  especially 
in  theoretical  and  practical  statesmanship,  that  is  ever  the 
attendant  upon  an  appreciated  and  wisely  spent  leisure,  easily 
made  the  men  of  the  South  the  leaders  in  public  thought, 
and  they  naturally  assumed  control  of  and  managed  in  great 
part  the  affairs  of  the  Government  for  years.  They  were 
enabled  by  the  genius  of  Mr.  Jefferson  to  substitute  the 
unconstitutional  State  banking  system  for  the  equally  un- 
constitutional national  banking  system  which  the  East  had 
foisted  upon  the  country,  and  through  the  prowess  of  Presi- 
dent Jackson  they  destroyed  the  national  bank  system  and 
turned  the  finances  over  to  the  State  banks. 

The  calculations  of  the  JEastern  financiers  (when  they 
induced  the  Constitutional  Convention  to  deny  the  States 
the  right  to  emit  bills  of  credit)  that  they  would  have  the 
sole  right  to  loan  the  money  needed  to  open  up,  settle,  and 
carry  on  business  in  the  new  States  as  they  came  into  exist- 
ence, had  been  in  great  part  defeated  by  the  issue  of  State 
bank-notes,  and  by  the  labor  of  the  slaves  in  the  Southern 

States. 

In  the  Western  States,  where  slavery  did  not  obtain, 
their  calculations  were  being  carried  out.  As  money  was 
needed  in  those  States,  the  East  loaned  it  to  the  people,  and 
for  a  time  they  found  full  use  for  all  they  had.  But  as  the 
growth  of  this  vast  territory  into  new  States  expanded, 
profits  increased,  and  the  surplus  capital  of  the  East  accu- 
mulated until  it  was  enlarged  beyond  the  demand. 


The  Negro  In  Finance  325 

In  the  Southern  States  it  was  different.  The  i)rofit 
accruing  to  the  Southern  planters  from  slave  labor  enabled 
them  to  supply  all  the  capital  that  might  be  needed  to  clear 
up  and  settle  the  country,  assisted  as  it  was  by  the  incessant 
and  increasing  labor  of  the  slaves.  It  is  evident,  therefore, 
that  the  system  of  slavery  was  enabling  the  South  to  fulfil 
its  mission  without  having  to  call  upon  the  East  for  money, 
as  the  Northwest,  where  slavery  did  not  obtain,  was  forced 
to  do.  This  was  not  so  objectionable  because  not  so  notice- 
able, so  long  as  the  demand  for  money  from  the  Northwest 
was  in  excess  of  the  surplus  capital  of  the  East. 

It  was  during  this  period  that  Mr.  Jefferson  made  the 
Louisiana  purchase  with  no  more  serious  opposition  than 
was  manifested.  It  was  not  so  apparent  at  the  date  of  the 
purchase,  as  it  became  afterward,  that  the  acquisition  of  this 
territory,  where  slavery  would  be  profitable,  was  what  saved 
the  supremacy  of  the  .South  as  long  as  it  did. 

When  it  was  realized  that  the  Louisiana  Purchase 
brought  into  the  Union  territory  which,  when  occupied  by 
the  slave-holding  population  of  the  South,  would  enable  it 
to  retain  its  supremacy,  and  deprive  the  East  of  the  right 
to  loan  its  surplus  capital  in  the  new  States,  the  sentiment 
of  abolitionism  first  found  serious  expression.  The  money 
interest  of  the  East  realized  that  if  the  slave  owner  was 
allowed  to  take  possession  of  this  new  territory  with  his 
slave  labor,  it  would  so  strengthen  the  power  of  the  South 
that  it  would  remain  in  charge  of  the  Government,  and  they 
would  be  deprived  of  the  right  of  ever  loaning  their  sur- 
plus capital  in  said  territory. 

It  is  evident  that  the  contest  w^as  for  supreniacy  in  the 
control  of  the  Government,  and  the  right  of  the  East  to  loan 
its  accumulating  surplus  capital  in  the  new  States,  if  not  in 
the  South.     The  fight  was  made  at  first  to  secure  the  con- 


326  The  Legal-Tender  Problem 

trol  of  the  Government,  but  this  could  not  be  done  if  slavery 
was  permitted  in  those  States.  It  was  necessary,  there- 
fore, that  slavery  should  be  excluded. 

The  South  was  as  conscious  of  the  advantage  of  adding 
slave-holding  States  to  the  Union  as  the  East  was  of  exclu- 
ding the  slaves  from  the  new  States.  At  first,  before  Eastern 
capital  had  become  plethoric,  the  warfare  was  waged  by 
the  ambitious  men  of  the  East,  who  desired  to  exercise  con- 
trol over  the  Government,  and  they  received  much  encour- 
agement but  little  money  assistance   from  Eastern  capital. 

The  warfare  at  this  time  was  waged  on  the  hustings,  the 
floor  of  Congress,  and  was  finally  settled  in  such  meas- 
ures as  the  Lecompte,  the  Kansas  and  Nebraskan,  and  the 
Missouri  Compromises.  These  compromises  were  agree- 
ments wherein  it  was  arranged  that  in  all  territory  north  of 
a  certain  line,  slaves  could  be  excluded,  and  in  all  territory 
south  of  that  line,  slaves  might  be  owned.  The  compro- 
mises were  made  because  the  issue  was  more  party  policy 
than  aught  else  at  that  time.  The  chief  actors  were  the  men 
of  ambition  who  desired  to  rule  over  the  destiny  of  the  na- 
tion, and  the  compromises  were  made  because  each  faction 
hoped  and  thought  that  the  future  settlement  of  their  re- 
spective territory,  under  encouragement  to  immigration, 
would  give  them  the  advantage. 

It  appears  that  the  South,  with  its  rapidly  increasing 
slaves,  was  the  more  active  of  the  two,  and  secured  the 
advantage ;  for  it  was  easier  to  move  and  utilize  the  labor 
of  the  chattel  slave  than  it  was  to  induce  the  industrial 
slave  to  quit  his  Eastern  home  and  take  up  his  residence  in 
the  new  territory.  Industrial  slavery  at  that  time  was  more 
a  theory  and  name  than  a  practical  condition. 

Under  our  pioneer  civilization  the  seed  when  first  sown, 
in  its  primal  growth,  was  most  promising  and  most  inviting. 


The  Negro  in  Finance  327 

It  took  time,  increase  of  population,  tariff  laws,  manipula- 
tion of  legal-tender  value,  and  a  congested  citizenship  to 
ripen  the  harvest,  and  the  capital  of  the  East  did  not  have 
that  control  over  it  to  which  it  has  since  attained.  There- 
fore, in  the  contest  to  add  new  States  to  the  Union  to  retain 
or  to  gain  supremacy  in  the  control  of  the  affairs  of  the 
Government,  the  South  was  the  more  successful.  So  soon 
as  this  became  evident,  the  hydra  of  abolitionism  was  un- 
chained, and  warfare  was  again  waged  upon  the  hustings 
and  the  floor  of  Congress,  until  another  compromise  was 
made  to  avert  the  war  that  was  inevitable  unless  the  East 
was  permitted  to  exploit  the  entire  country  as  it  was  ex- 
ploiting the  great  Northwest. 

Eastern  capital  had  not  as  yet  become  vitally  interested. 
The  Southern  statesmen  had  been  shrewd  enough  to  post- 
pone the  day  when  the  surplus  capital  of  the  East  would 
become  an  active  and  deadly  factor  in  the  contest  by  the 
passage  of  the  Walker  Tariff,  and  other  legislation  which 
had  checked  to  some  extent  the  rapid  accumulation  of  for- 
tunes in  the  East  and  North.  But  notwithstanding  these 
evidences  of  superior  ability  and  statesmanship  upon  the 
part  of  the  Southern  leaders,  they  brought  their  destruc- 
tion upon  themselves  by  the  failure  to  detect  the  fallacy  in 
the  construction  of  the  Constitution  that  only  gold  and  silver 
should  be  the  money  of  the  country. 

The  failure  on  the  part  of  Democratic  administrations 
to  detect  this  fallacy ;  their  failure  to  appreciate  and  put  in 
practise  Mr.  Jefferson's  theory  of  issuing  treasury  notes ; 
their  refusal  to  issue  treasury  notes  except  as  a  debt  to  be 
paid  and  the  notes  retired  in  a  few  years ;  their  issuance  of 
bonds  to  retire  the  notes ;  their  taking  away  the  quality  of 
legal  tender  from  the  subsidiary  silver  and  foreign  coins  at 
a  crucial  period,  and  their  persistence  in  forcing  the  money 


328  The  Legal-Tender  Problem 

of  the  country  to  a  metallic  base  at  the  most  inopportune 
times,  precipitated  so  many  panics  —  especially  the  one  of 
1857^- that  the  people  became  so  impoverished  and  the  cap- 
italists made  so  wealthy  by  i860  that  the  capitalists  had  a 
surplus  on  hand  above  the  amount  that  could  be  loaned  in 
the  free  States. 

The  capitalists  now,  for  the  first  time,  became  an  active 
and  ag-grcssive  factor  in  the  movement  to  free  the  slaves, 
and  abolitionism,  under  the  impetus  of  their  encouragement 
and  support,  assumed  such  intensity  of  purpose  that  it 
openly  and  boldly  denounced  the  Constitution  as  "  a  league 
with  death  and  a  covenant  with  hell."  The  South  felt,  in 
its  unconsciousness  of  the  controlling  motive,  the  deadli- 
ness  of  the  purpose,  though  it  was  masked  behind  the  sen- 
timent of  abolitionism  which  was  so  rabid  at  that  time,  en- 
couraged and  driven  forward  as  it  was  by  the  unseen  hand 
of  Eastern  capital. 

The  preparation  for  war  was  not  at  first  thought  to  be 
serious,  because  of  the  declaration  of  the  South  that  it  was 
preparing  to  resist  the  evident  intention  of  the  abolitionists 
to  free  their  slaves. 

It  was  at  once  announced  by  President  Lincoln  that 
slavery  was  constitutional,  as  had  just  been  decided  by  the 
Supreme  Court  of  the  United  States,  and  that  he  would 
enforce  the  law  in  the  protection  of  the  slaveholders'  rights ; 
that  it  was  ridiculous  for  the  Southern  States  to  be  taking 
such  action  because  of  the  insane  utterances  and  actions  of 
a  small  body  of  lunatic  abolitionists  that  would  prove  as 
amenable  to  the  power  of  the  Government  as  other  rabid 
disturbers  in  the  East  had  proved  in  the  past. 

The  unconsciousness  of  the  South  that  it  had  by  its 
financial  policies  and  practises,  when  in  control  of  the  Gov- 
ernment, made  the  capitalists  of  the  East  rich,  powerful,  and 


The  Negro  in  Finance  329 

dominant,  prevented  it  from  expressing  intelligently  the 
issue  which  it  realized  had  to  be  met,  and  it  brought  on  the 
war,  as  it  said,  because  the  abolition  sentiment  was  all-pow- 
erful, and  would  override  the  policy  of  President  Lincoln, 
even  if  he  was  sincere  and  honest  in  his  declaration.  The 
statesmen  of  the  South  paid  an  undeserved  compliment  to 
the  East  in  the  fear,  accentuated  by  their  declaration  of  war, 
that  the  East  was  going  to  wage  war  against  them  for  a 
pure  sentiment  unmixed  with  profit. 

It  is  strange  that  those  Southern  statesmen  did  not  see 
the  absurdity  contained  in  the  contention,  and  look  for  the 
source  of  gain  that  the  merest  acquaintanceship  with  the 
dominant  characteristics  of  the  East  should  have  informed 
them  is  the  cause  of  all  its  actions.  In  doing  so  the  motives 
of  the  East  would  have  been  discovered  as  well  as  the  false 
policies  of  finance  it  had  inserted  in  the  Constitution  for  its 
profit,  and  which  was  made  ineffective  in  the  South  and 
wherever  chattel  slavery  obtained.  If  they  had  made  this 
discovery,  it  is  certain  that  in  preparing  for  war  they  would 
not  have  inserted  the  same  financial  fallacy  in  their  con- 
stitution, and  issued  their  treasury  notes  as  a  debt  of  the 
new  Government  to  be  paid  in  coin,  when  they  had  no  coin, 
and  could  not  secure  any.  The  knowledge  that  the  South 
had  no  coin,  and  could  not  secure  any  with  which  to  redeem 
its  treasury  notes,  made  them  the  more  worthless  as  they 
were  issued,  imtil  they  became  valueless ;  for  they  were  not 
made  legal  tender  even  to  pay  dues  to  the  Government. 

The  struggle  of  the  South  soon  degenerated  into  a 
futile  attempt  to  wage  a  great  war  without  the  assistance 
of  any  legal-tender  money  whatever,  with  the  inevitable  re- 
sult that  will  always  attend  such  a  want,  however  patriotic 
and  self-sacrificing  the  people  may  prove.  The  Southern 
people  lost  the  fight  in  the  preparation  for  the  conflict  solely 


330  The  Legal-Tender  Problem 

on  account  of  the  financial  policy  adopted ;  and  though  they 
used  the  treasury  notes  long  after  they  were  valueless,  and 
struggled  against  the  internal  financial  enemy  more  patri- 
otically and  more  self-sacrificingly  than  they  did  against 
their  physical  foe,  if  such  a  thing  could  be  possible,  they  did 
but  demonstrate  to  the  extremest  verge  of  human  efifort  and 
endurance  that  successful  war  can  not  be  waged  without  the 
aid  and  use  of  the  value  of  legal  tender. 

The  South  failed  to  profit  by  the  experience  of  Napo- 
leon, who,  relying  upon  the  assistance  of  gold  and  silver 
to  support  his  lust  for  universal  empire,  was  defeated  and 
rendered  harmless  by  the  less  powerful  prime  minister  of 
England.  To  accomplish  his  overthrow,  it  was  necessary 
that  the  legal  tender  value  of  England  should  be  issued  in 
such  quantities  that  the  armies  of  the  allied  powers  could 
be  supported  while  they  were  engaged  in  the  struggle ;  but 
after  the  termination  of  the  war,  the  abuse  that  was  prac- 
tised upon  the  English  people  in  the  interest  of  the  money 
power, —  in  turning  all  that  legal-tender  money  into  a  debt 
of  the  empire, —  was  more  destructive  than  the  success  of 
Napoleon  would  have  proved.  Napoleon  failed  in  his  at- 
tempt, but  he  was  the  cause  of  the  necessity  for  the  inaug- 
uration of  a  pure  and  scientific  financial  system  to  compass 
his  overthrow. 

It  is  strange  that  intelligent  statesmanship  should  fail 
to  appreciate  that  his  dream  of  universal  empire  was  not 
successful  solely  because  of  the  aid  and  use  of  legal-tender 
value,  but  should  lend  their  efiforts  to  its  manipulative  abuse 
in  changing  it  into  an  interest-bearing  debt,  and  conferring 
that  value  on  gold  alone,  by  which  means,  as  it  is  extended, 
the  money  power  is  fast  acquiring  the  universal  empire  that 
the  legions  of  Napoleon  could  not  secure  and  hold  for  him. 


XXXVIII 

The  Political  Duty  of  the  Negro 

In  the  foregoing  the  negro  may  ascertain  the  true  cause 
of  his  freedom ;  and  if  he  deems  the  resuh,  when  coupled 
with  the  motive,  demands  or  justifies  the  abandon  of  devo- 
tion he  has  given  to  the  RepubHcan  party,  he  is  invited  to 
examine  the  present  condition  of  affairs  to  ascertain  where 
his  true  interest  in  the  future  Hes. 

The  substitution  of  industrial  for  chattel  slavery  was 
only  mock  freedom  for  the  negro  under  the  financial  policy 
of  the  Republican  party.  It  very  naturally  has  been  more 
agreeable  and  more  bearable  so  far,  both  in  sentiment  and 
in  practise,  and  will  always  be  so  in  sentiment ;  but  whether 
it  will  always  be  so  in  practise  is  exceedingly  problematical. 
This  should  be  the  only  thing  for  the  negro,  as  a  citizen,  to 
consider,  and  he  should  lay  aside  his  prejudice  after  all  these 
years,  and  rationally,  dispassionately,  and  intelligently  de- 
cide what  is  best  for  his  future  interest.  That  he  is  one  of 
the  great  body  of  prospective  industrial  slaves  that  will  in 
the  early  future  infest  this  country,  must  now  be  evident  to 
the  more  intelligent  of  the  race.  That  he  is  in  the  company 
of,  and  upon  terms  of  political  equality  with,  those  who  are 
supposed  to  be  the  free  white  men  of  this  country,  should  be 
most  pleasing  to  him,  but  it  should  not  cause  him  to  relax 
or  dull  his  rationalism  as  to  w^hat  should  be  done  to  better 
the  condition  of  both. 

The  future  of  the  industrial  slave  in  this  country  is  un- 
inviting enough  for  the  white  element  under  present  con- 

331 


332  The  Le^al-Tender  Problem 

ditions  and  their  future  trend,  but  it  is  portentous  for  the 
negro.  The  white  industrial  slaves  who  were  induced  forty 
years  ago  to  shoot  the  Southern  slave  owners  that  the  negro 
might  be  free,  now  shoot  the  colored  industrial  slave  whom 
the  greed  of  capital  would  induce  to  deprive  the  white  in- 
dustrial slave  of  his  only  chance  to  make  a  living  for  him- 
self and  familv. 

The  white  industrial  slave  of  the  North  and  the  East 
is  the  product  of  his  own  imbecility  in  fighting  to  free  the 
negro  that  the  Eastern  financier  might  have  the  right  to 
loan  his  capital  in  the  South  and  further  enrich  himself  at 
the  expense  of  the  labor  of  both. 

When  the  colored  industrial  slaves  leave  the  South  to  go 
North  or  East  at  the  instigation  of  the  financier,  and  for 
less  wages  than  the  white  industrial  slave  can  work  for,  and 
by  such  action  throw  his  children,  and  possibly  the  m^n 
himself  in  his  old  age,  out  of  employment  and  upon  the 
charity  of  an  unfeeling  world,  it  is  uncertain  and  hard  to  de- 
cide as  an  ethical  question  whether  he  ought  not  to  be  shot. 
The  only  justifiable  excuse  the  negro,  as  an  industrial 
slave,  could  have  for  being  willing  to  take  the  position  of 
an  Eastern,  Northern,  or  Western  workman  at  less  wages, 
would  be  that  he  too  is  in  sore  need,  and  must  have  the 
wages  to  enable  him  to  live.  The  plea  of  self-preservation 
is  his  only  justifiable  excuse  for  such  conduct.  Under  that 
same  plea  the  white  industrial  slave  shot  him,  and  when  two 
distinct  races  are  forced  to  act  against  each  other  under  such 
a  plea,  the  issue  has  always  been  solved  by  the  stronger  race 
driving  out  the  weaker. 

The  higher  duty  for  the  negro  is  to  ascertain  who  is  re- 
sponsible for  the  conditions  that  make  it  necessary  for  him, 
under  such  a  plea,  to  exhibit  such  ingratitude  to  the  white 
industrial  slaves  who  fought  four  years  to  secure  his  free- 


The  Political  Duty  of  the  Negro  333 

dom.  If  in  the  examination  it  should  occur  to  him  that  the 
party  in  power,  by  the  aid  of  his  vote,  allows,  if  it  does  not 
encourage  and  create,  the  present  conditions  by  its  policies, 
would  it  not  be  the  part  of  wisdom  to  help  turn  the  party 
out  of  power,  and  see  if  a  change  would  not  be  beneficial 
to  all  persons? 

If  the  present  trend  of  affairs  continues  many  years, 
under  the  policies  that  the  Republican  administration  has 
lately  put  in  force,  it  is  certain  that  the  class  of  white  men 
who  shoot  each  other  for  taking  their  jobs  at  less  wages  will 
break  into  ungovernable  fury  towards  the  negro,  if  he 
should  be  induced  to  attempt  the  same  thing. 

As  the  poverty  of  the  industrial  slave  becomes  more 
general  and  more  desperate  under  the  present  system  of 
exploiting  labor, —  made  .the  more  inevitable  under  the 
iniquitous  single  gold  standard, —  the  efforts  of  capital  to 
substitute  one  laborer  for  another  at  less  wages  will  produce 
class  antagonism ;  and  when  it  becomes  as  distinctly  racial 
as  it  will  be  between  the  blacks  and  the  whites,  the  blacks 
will  disappear  to  such  fields  of  labor  as  the  whites  do  not 
care  to  enter. 

This  racial  antagonism  has  grown  so  rapidly,  and  is 
growing  so  bitter  that  it  will  not  be  many  more  years  be- 
fore the  unsafest  ])laces  in  the  Union  for  large  bodies  of 
negro  laborers  will  be  north  of  Mason  and  Dixon's  line,  and 
the  safest  places  will  be  the  cotton  fields,  sugar  plantations, 
and  rice  swamps  of  the  South.  The  negro  is  destined  to 
find  out  only  too  soon  that  when  the  abolition  sentiment  is 
attended  with  loss  instead  of  profit,  results  in  injury  in- 
stead of  benefits,  its  active  expression  will  be  something 
that  he  will  not  enjoy. 

The  highest  duty  of  the  negro  is  to  assist  those  indus- 
trial slaves,  whoever  they  may  be,  to  institute  such  changes 


334  The  Legal-Tender  Problem 

in  the  policies  of  the  Government  as  will  be  best  for  them, 
and  put  a  stop  to  the  financial  iniquities  foisted  upon  the 
country  by  the  Republican  party  solely  in  the  interest  of 
the  money   power. 

The  exploitation  of  labor  under  the  financial  system  and 
tarifif  policies  of  the  Government  for  the  past  twenty-five 
years  has  been  severe  enough,  and  produced  the  necessity 
for  the  many  strikes,  and  caused  the  distress  that  has 
afflicted  the  country.  The  money  that  can  be  made  out  of 
industrial  slavery  under  and  by  virtue  of  certain  class  legis- 
lation, has  been  most  forcibly  demonstrated  in  the  fabulous 
wealth  of  the  few  and  the  degradation  of  the  laborers. 

Under  the  financial  legislation  of  the  Fifty-sixth  Con- 
gress, the  possibility  of  money-making  by  the  manipulation 
of  legal-tender  value  and  trusts,  has  been  carried  to  the 
extremest  limit,  and  it  is  now  only  a  question  of  time,  and 
the  depths  of  degradation  the  laborers  will  endure,  before 
they  move  in  desperation  to  throw  off  the  burden. 

It  is  readily  seen  that  the  most  certain  provocation  to 
first  action  would  be  the  attempt  of  capital  to  force  the  sub- 
stitution of  negro  laborers  for  the  industrial  white  slaves. 
As  this  attempt  is  supported  and  enforced  by  capital  in  its 
blind  greed,  race  antagonism  will  be  excited  to  uncontrol- 
lable fury,  and  before  it  can  be  checked,  even  by  the  strong 
arm  of  the  Government,  if  it  is  not  made  powerless,  the  ex- 
termination of  the  negroes  will  have  commenced. 

The  only  safety  of  the  negro  lies  in  the  betterment  of 
the  conditions  of  industrial  slavery.  The  betterment  of  the 
conditions  of  industrial  slavery  can  only  be.  accomplished  by 
the  destruction  of  the  system  that  generates  and  encour- 
ages combines  and  trusts. 

The  destruction  of  combines  and  trusts  can  only  be 
accomplished  by  the  revision  of  the  tariff  and  the  overthrow 


The  Political  Duty  of  the  Negro  33  5 

• 

of  the  present  financial  system  that  is  proceeding  to  the 
single  gold  standard  and  a  permanent  debt  for  the  benefit  of 
the  national  bankers.  The  tariff,  the  gold  standard,  and  the 
system  of  national  banks,  can  be  rendered  ineffective  to 
make  the  rich  richer  and  the  poor  poorer  only  by  turning 
the  Republican  party  out  of  power.  This  can  be  accom- 
plished by  the  negro  vote,  and  if  the  negroes  will  show 
only  a  modicum  of  that  gratitude  to  the  industrial  slaves 
who  fought  four  years  to  free  them  that  they  have  shown 
for  the  capitalists  who  induced  them  to  fight,  and  who  now 
dominate  the  Republican  administration,  they  may  yet  be 
enabled  to  live  and  prosper  in  this  country  at  peace  with 
the  other  industrial  slaves,  when  all  are  prospering  and 
making  a  living. 

But  if  the  negroes  persist  in  allowing  the  capitalists  to 
use  them  to  keep  the  Republican  party  in  power,  and  pit 
them  against  the  industrial  white  slaves  at  lower  wages, 
that  the  fortunes  of  the  financiers  may  be  increased,  then 
they  may  expect  the  warfare  they  have  called  down 
upon  themselves.  It  is  strange  if  they  will  not  read  the 
signs  of  the  times  aright !  The  issue  is  bound  to  be  made. 
The  contest  of  the  industrial  slave  for  freedom  will  surely 
come,  and  in  the  maelstrom  of  the  revolution  the  negroes 
will  be  the  greatest  sufferers,  and  but  few  of  them  will  be 
present  when  the  end  comes,  whatever  the  result. 

END   OF    VOLUME    I. 


INDEX 


Abolitionist    321 

Act   of    Farlianient 53,    57 

Acts  of  Continental  Congress.  .61,  62, 

64,  65,  66,  67,  69 

Acts  of  Congress 100,    121,    123, 

129,    149,    ISO,    162,    163,    232,    249, 

253.    259.    260,    266,    267,    271,    272, 

2/3,  276,   281,  282,  284. 
Alts  of  Confederation.  .67,  69,  80,   83 

Additional    Currency 106 

Allison,  Archibald    228 

Alter,  amend,  or  repeal 183,    184 

Antagonism    of   systems 45 

Articles  of  Confederation 65,  66 

Bank   issues,   restriction 134 

Bank  of   Kngland 50,   55 

Banks  of  issue,  effect  of 217 

Banks  of  issue,   failure   of 224 

Banks  of  issue,   theory   of 

Ill,    112,    142 

Bank   of    North   America 74 

Bank-notes,  motive  for  issue..  140,  143 
Bank-notes,  specie  value  of 

«33.    137.    138 

Bank,  purchase  of  sovereignty....  163 

Bank,   right   to   exist 98 

Banks,  .State. .  .130,  135,  140,  152,224 
Bank  of  United  States,  First.  104,  144 
Bank  of  United   States,  Second... 

155.  230.  231.  246 

Bank  of  Venice 39.    118 

Benton,    Thomas    237,   241,   257 

Biddle,   Nicholas    232,  237,  247 

Bill  of  credit,  definition 

243,   244,  263,  26s 

Bills  of  credit.  ..  .93,  96,  97,  204,  240 

Bonds  at  a  discount ^  .  305 

Briscoe  vs.   Commonwealth  of  Ken- 
tucky        261 

Butler,  of  South  Carolina 93 

Calhoun,    Senator 258,    275 

Cash   and  credit   system 2i,   214 

Change   to  empire 290 

Charter,  a  contract 173.   ^"77 

Change    by    construction  ....  128,    157 

Chattel    slavery    322 

Civil    War    305 

Citizen,   meaning   of iS7 

Clay,   Henry    i47 

Coinage  of  gold  dollars 301 

Coins 116,  117,  118,  127 

Colwell's     "  Ways     and     Means     of 

Payment" 46,    nS.    121 

Colonial  finance   .••••.•    5°.  62 

Congress,     power    to    emit    bills    of 

credit    94.   96 

Congress,  power  to  grant  charters. 

96,   97 


PACE 

Continental  issues 71,  73,  92 

Continental    Congress,   address. .  . . 

81,   82,  84,  87,   89 

Conspiracy   of   bankers 313 

Contraction  of  money.... 55,   228,  229 

Constitutional    Convention 90,   91 

Control   of  Government 325,   327 

Corporation  not   a  citizen 157 

Craig  vs.   Missouri 240 

Crawford,  secretary  of  treasury... 

209,  228 

Dartmouth  College  Case....  170,  182 
Dartmouth  College  Case,  effect  of. 

174.    183 

Debt   of   Revolution 99.    >o' 

Debtor's  right  to  pay 127,  128 

Demand    notes 309,    313,    316 

Deposits,  removal   247 

Destruction    of    trusts 334 

Dollar,  the  word,  unit  of  value  11,  121 

Dollar,  the  coin 123 

Dollar  of  payment 124 

Duane,  secretary  of  treasury 247 

Elements   of   money 107,    109 

Ellsworth    94 

Empire,  change   to 296 

Exploitation   of   labor 3'J4 

Factions,   origin   of i44 

Federalist   party 144.    168 

Fillmore,   president    296 

Foreign    policy,    imitated 292 

Franklin,   Benjamin 56 

Gerry,    of    Massachusetts 92 

Gold  from  California 296,  300,  304 

Gold   coins 125.   250 

Gold,  the  cheaper  dollar 302,  315 

Grcsham's    Law,    reason    of i33 

Hamilton,    .Mcxander 100,    121 

Harrison,  President 267,  269,  279 

Independence    62,   78 

Independent   treasury    266 

Jackson,   Andrew,   veto 

228,  230,  235,  252-254 

Jefferson,  Thomas   

121,   135,   145.    '47.    155.  27s 

Juillard    v.s.    Greenman 225 

king,  of  Massachusetts 92,  97 

Labor    expressions    of    value 23 

Labor,  the  source  of  value 

10,    12,    16,    IQ 

Langdon,  of  New  Hampshire 95 

Legal-tender  cases .    164,  225 

Legal  tender,  a  property  right. 45,  226 

Legal  tender,  origin   of 4>.  42 

Legal  tender,  power  of 11,    127 

Lincoln,  president    30.^ 

Louisiana  purchase    3-5 

337 


338 


Index 


Madison,  James 75,  94,  97,   162 

Madison,    President,   veto 162 

Marshall,    Chief   Justice 

156,    174,    182,    184,    186,   243 

Marshall,    Chief    Justice,    motive    of 

186,    262 

Massachusetts,  so,   51,  52,   59,   144,  242 

Martin,    Luther    95 

Mason,  Judge   164,   229 

Mason,   of    Mrginia 93,    97 

Mercer,   of   Maryland 95 

Metallic  base 213,   216,   220,   267 

Mexican    war   finances 288,   289 

Mint  established    129 

Money  of  account 11,    113,    119 

Money;   viz.,   coins 116,    117 

Monopoly    233,   255 

Morris,   Gouverneur    94 

McCulIough   vs.    Maryland...   165,    187 

McLean,    Justice    262 

National    bank    notes 142 

National  bank  faction  ...147,   152,  162 

National  bank,   treachery  of 152 

Negro    in    finance 319 

Panics,    cause    of 

26,    57-S9.    256,    279,    283-286 

Panic  of    1857 3^3 

Panic  of    i860 304 

Paper   money.    States 74,    75 

Paper  money    

50,    53-56,   93-97,    219,    226 

Paper  money,  warfare  against 92 

Parliament    53.    57 

Payment  of  debt   of   Revolution .  .  . 

78,    loi.    102 

Parties,   factional   origin    of 1^4 

Peace    declared    1 8 1  5 153 

Pennsylvania    5° 

Periods   of   prosperity 25 

Polk,   President    279,   285,  291 

Power  of  Continental  Congress.  .61-65 

Power  of  Congress 192,    197 

Political   duty   of  negro 331.   333 

Power    to    emit    bills 204 

Power   to   grant   charters 

75.  96,   156,   167,   190 

Power  of  legal  tender 2y,    1 1 1 

Pownal,    Thomas    56 

Price,    definition    of 20 

Property-rights  faction 268,  274 

Prosperity    25,   299 

Quincy,  Josiah    147 

Race    antagonism    332,    334 

Randolph,    of    Virginia 95 

Ratio,    change    of 248 

Read,    of    Delaware    95 

Representatives    of   value 

21,  23,  27,  28 

Republican   party    144,    169 

Resumption    55,  228,  229 

Resumption   in   England    228 

Revolution,  cause  of   58,   59 

Richardson,  Judge   174,   181 

Rome    36,    38 

Safety  of   negro    334.   335 


Scarcity    of    money 

106,  210,  212,  221,  222,  251 

Second  Bank  of  United  States...  246 
Silver  dollar.  .  123,  124,  127,  134,  250 
Silver  dollar,  cessation  of  coinage.  134 

Silver,  e.xport  of 133,   251 

Slavery    constitutional     328 

Slavery   abolished    319 

Smith,   Adam 14,    15-18,   22 

Socialist    8 

Southern    planter    324 

Sovereignty,  sale   of    163 

Sovereignty,    deprivation    of 

93.  96-97.    166,    190,    197 

Sovereignty,   limitation   of    

176,    190,    197 

Spanish    dollar    122 

Specie  in  the   country  in    1776.. 72,  75 

Specie,    imported     286 

Specie,    withdrawal   of 148,    157 

Standard  of  payment    116,    117 

Standard  of  value 119,    127,   220 

State   banks..  130,    134,    142,    149,   255, 

261,    264,    265 

State  banks,  theory  of 131,   140 

State  banks,   supremacy  of...  155.253 

State  courts,  ]>ower  of 180,  264 

States,    right   to   exist 198 

Stevens,    Senator    Thad 318 

Story,  Justice 164,    183,  261,  262 

Supreme  Court    106,    261 

Supreme  Court,  duty  of.  106,  158,  264 
Suspension   of   banks 

135.   253,  256,  257,  283 

Tax   on   tea    59 

Taylor,    President    29s 

Treasury,   inauguration   of    100 

Treasury    notes    

137.    138.   150.    152,    192,   27s 

Treasury  notes   repudiated 

163,  256,  277 

Treasury  notes  at  a  premium 305 

Treasury  notes  constitutional.  164,  229 
Treasury  notes  a  debt... 259,  277,  282 
Tyler,    President    

270,  274,  276,  278,  279 

Unit   of   value 11,    1 23 

United   States  Bank  vs.   Deveaux.  156 

Usurpation 200 

Value    determined    9 

Value  defined    12,    13 

Value   of   the   unit 123 

Van   Buren,   President.  .  .256,  259,  266 

Variation   of  value 124,   127,   249 

Veto  sustained    232-235 

Volume  of  business 24,   214 

Washington,   George    99 

War  of  the  banks..  135,    148,    152,   165 

War  notes    I37 

War  of    1861 ■•  305 

Webster,  Daniel    i73.   188,  256 

Whig   party    239,   .-'74 

Wilson,    of    Pennsylvania 95 

Woodard   vs.    Dartmouth    College.. 

170,    182 


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